If you are over 50, or if you care for an elderly person, you have probably noticed ads for senior life insurance policies. Sometimes these are called guaranteed issue life or simplified issue. Sometimes the products are called final expense or burial policies, or sometimes they are marketed as a way to pass on a tax free estate to survivors. No matter what term is used, these are probably talking about a small face value whole life insurance policy. They are designed to be easy for older people, or people that are not in perfect health,to be able to apply for. By small face value, I mean that they usually provide coverage for $2,500 to $25,000.
A guaranteed issue life insurance policy sounds attractive, and for some people it can be the right choice. Basically, the company uses a waiting period instead of health questions in order to issue the policy. The insured person usually has to survive for a term of two or three years, depending upon the policy. If the person survives that period, then their heirs are entitled to the entire face value of the policy. If not, the beneficiaries will get back the premiums paid plus a set interest rate. If an older person, or a person in imperfect health, cannot be accepted by any other insurance policy, and if they feel they need life insurance, then this is certainly a no-lose contract.
However, guaranteed policies will be the most expensive per every thousand dollars of benefit. The small face value is what makes them affordable. On the other hand, simplified issue life insurance will pay an immediate death benefit. As soon as the policy is issued, the insured person is covered for the whole amount. Premiums will usually be cheaper too.
You will have to answer health questions, but they are not as intrusive as fully underwritten policies. In general, people within the age limits, who have not been diagnosed with a terminal disease and who do not live in a nursing home can qualify.It would be better to have a contract with an immediate death benefit, and with a cheaper premium, if you can qualify for it!
Now consider the reason you might purchase senior life insurance, either for yourself or for aging family members. If you are not clear how funeral expenses would get paid if a person passes away, then a few thousand dollars of coverage may be an affordable way to plan for final expenses. Money can also be used to travel, transporting a body, and to settle debts. Leftover money from the policy can be kept as an inheritance by the beneficiaries. Most of the time, the payout will not be taxed either.
Sometimes people buy these type of policies to make things fair between multiple siblings. Consider an elderly parent with two children. Let us say, for example, that one of the children will inherit a valuable family heirloom. The other child will be names as a beneficiary on a policy so they may have cash instead. In this way, a parent can try to be fair to both children.