Costly Life Insurance Mistakes Seniors Should Avoid

One of the most common mistakes seniors make when shopping for life insurance is incorrectly or inaccurately assessing their coverage needs. If a senior is buying too much or too little life insurance, they probably aren’t asking themselves why they want insurance in the first place. 

Buying a high-coverage policy might be pointless if your debts are paid and your family doesn’t need an inheritance. On the other hand, if you want to cover the cost of your funeral or provide financial assistance to family members, not buying enough insurance can put you at a disadvantage.

Seniors can avoid this by assessing their financial obligations, such as outstanding debts, funeral costs, and ongoing support for dependents.

Listing beneficiaries on a life insurance policy may seem simple, but it can be easy to overlook. For most seniors, the point of getting a life insurance policy is to leave money for their beneficiaries – but who should you choose?

Enlisting the death benefit to an adult child is typically the easiest option for seniors, as it won’t enter the court system, and your child will receive the amount directly. Leaving the death benefit to a minor grandchild, however, can cause complications, and it may make more sense to set up a trust.

If you’ve experienced a significant life event like a divorce or a death in the family, it’s vital to update your list of beneficiaries. In particular, seniors should list at least one primary and two contingent beneficiaries to avoid potential disputes. 

Seniors often mistakenly choose a life insurance policy type that doesn’t suit their needs or life stage. For example, seniors might purchase a whole life insurance policy because of its cash value or saving component. However, whole-life insurance policies for seniors can become costly and unsustainable. 

Instead, seniors should pick term life insurance because the time frame for holding the policy is shorter. Still, you should be mindful of the terms you choose. You can’t make a claim if you outlive the policy’s term. As a general guideline, healthy 65-year-old seniors might benefit most from a 20-year term, whereas older seniors above 75 might consider a 10-year term or shorter.

Now, if you’re buying life insurance to pay off a mortgage, you might benefit from another option – mortgage insurance. Canadian seniors have an average mortgage debt of over $85,000, as many enter retirement with outstanding debts and not enough savings. In this case, you can purchase mortgage insurance to pay off this debt. Just note that you can’t use mortgage insurance to pay off anything else.

Family members and friends with life insurance policies can be well-meaning, but they aren’t experts. Choosing a life insurance policy without consulting an expert can lead to costly mistakes, such as buying policies that are too expensive, lack the necessary features, or just aren’t suited to your needs. 

It’s best to shop around for a life insurance policy with advice from licensed insurance agents, financial advisors, or professionals who can provide the appropriate information. These professionals can help you navigate nuances like insurer reputation and provide options for comparing quotes.