In everyday speech, a “senior” is someone who is a senior citizen or a person over the age of 65. If you’re in this category, you’re in a favored group for us here at Insurance and Estates. The reason that we especially like you is because you’re at an age and life stage that closely identifies with our core value of promoting “legacy building”. With this in mind, today’s topic examines the best life insurance for seniors who seek to build and leave a legacy. Any such strategy should include not only financial support but also practical and moral guidance.
What is Legacy Building?
Websters dictionary defines “leaving a legacy” as anything handed down from the past, as from an ancestor or predecessor.
Quora.com defines leaving a legacy in a bit more depth by referring to “leaving an impression upon the world for posterity. It’s what you did with your life while you lived and it lives on… It’s what you leave for future generations to get inspired from and create their own destinies and ultimately their own legacies!”
So the first important question that you need to ask yourself is what you will leave behind for future generations?
In order to realize any dream, financial support is needed and this is often the focus of legacy creation through estate planning. However, I’ll suggest that estate planning for financial support is only one important part of the equation. Passing along values to future generations is another very important part of legacy creating and may even be more important than the albeit important economic aspects of planning.
For this reason, the best senior life insurance strategy from a legacy building standpoint should be about more than just leaving a death benefit and we will discuss that in the recommendations to follow.
Best Life Insurance for Seniors [Our Top Picks]
Most of our visitors looking for the best life insurance for seniors want to know who the top companies are. So we are including our top 10 list here at the outset of the article. However, in order to understand this list in context, please take a moment to read through the rest of our article that focuses on strategies you can use along side the best life insurance for seniors to maximize wealth building and legacy creation.
The following life insurance companies for seniors focuses on the policies offered and the strength of the company to meets its financial obligations. We list the companies in alphabetical order, as there is no one “best” life insurance for seniors company out there, although there are certainly some that are better than others. And know this, when applying for life insurance as a senior, permanent life insurance underwriting is typically easier to navigate than term coverage, making cash value life insurance a better option.
|Company||Policies Offered||Financial Ratings||Read the Review|
|Term, Universal & Whole Life||A.M. Best rating: A-||Assurity Life Insurance Company|
|Term, Universal & Whole Life||A.M. Best rating: A||Foresters Life Insurance and Annuity Company|
|Term &, Universal Life||A.M. Best rating: A+||Lincoln National Life Insurance Company|
|Term, Universal & Whole Life||A.M. Best rating: A++||MassMutual Life Insurance Company|
|Term, Universal & Whole Life||A.M. Best rating: A+||Minnesota Life Insurance Company|
|Term, Universal & Whole Life||A.M. Best rating: A+||North American Company for Life and Health Insurance|
|Term, Universal & Whole Life||A.M. Best rating: A+||Penn Mutual Life Insurance Company|
|Term & Universal Life||A.M. Best rating: A+||Pruco Life Insurance Company|
|Term, Universal & Whole Life||A.M. Best rating: A+||Transamerica Life Insurance Company|
|Term & Universal Life||A.M. Best rating: A||Security Life of Denver Insurance Company|
Estate Planning with Life Insurance for Seniors
When we talk about formulating a strategy using top life insurance policies for seniors to leave a legacy, it starts with some basic estate planning guidance. Estate planning generally refers to the legal directions and appointment of representatives that are included within a set of legal documents to apply in the event of disability, incapacity, or death.
Think of your estate planning documents as the flight plan and the life insurance proceeds and other valuable estate assets as the airplane. Typical estate planning documents will include a last will and testament, a durable power of attorney and healthcare directives.
Usually trusts are also beneficial and may be either revocable living trusts or irrevocable trusts depending upon the estate circumstances and goals. Trusts are typically used for asset protection, probate avoidance, estate tax planning and disability planning.
Step 1 – Make Sure Your Life Insurance Supports Your Estate Planning Goals
So, your estate planning goals should be spelled out in the above mentioned documents and to orchestrate an appropriate life insurance strategy, you’ll need to connect the dots.
Examples of estate planning goals could be:
- Provide educational resources and encourage education for children and/or grandchildren
- Encourage moral choices and responsibility in future generations
- Provide liquidity to pay for federal and/or state estate taxes
- Provide liquidity for ongoing business operations and/or transition
- Charitable and/or political contributions
The first step then, in connecting the dots, is to describe your goals and their importance in writing, and then map out a path to implement them in your estate planning documents. Usually, the last will and testament and/or trust documents will emphasize your estate planning goals that are most important.
Estate Tax Planning
Life insurance death benefit proceeds are often used to provide liquidity to pay federal estate taxes. Given the current administrations discussion about eliminating the death tax, referring to the federal estate tax, this aspect of estate planning may soon have less emphasis. However, due to the cycles on Washington, this will most likely always be an estate planning concern.
Educating Future Generations
Practically, a parent or grandparent can educate the child or grandchild as to the wisdom of leaving the proceeds to be invested and grown and this can open a dialogue for educating future generations in financial wisdom.
Business Continuity Succession Planning
Covering federal estate taxes and mentoring future generations can also extend to a family business succession planning and business continuity succession planning. Here we have a great setting for covering all the bases needed to facilitate the transition of the business because both the educational and financial aspects are critical whether the goal is for family members to take over or to facilitate a sale to a third party. Often a buy-sell agreement is part of this education process and should become an important part of the discussion.
Using an ILIT for Estate Planning
One common estate planning approach to proactively plan for future generations with life insurance is using an irrevocable life insurance trust (ILIT).
Using an ILIT can accomplish a number of the above estate planning objectives at once and this has made it a popular estate planning choice for seniors. A short summary of the way an ILIT works, without rehashing our prior post on this topic, is an irrevocable trust is created to hold life insurance to be purchased by the trustee. Our senior who created the trust will “fund” the trust by gifting to it every year. Currently, $14,000 per beneficiary can be gifted without any tax ramifications. You can do the math but with 3-5 grandchildren, this gifting could be significant. The trustee can then pay the life insurance premiums with the proceeds.
ILIT for estate tax planning with an ILIT, the life insurance policy can grow within the trust and outside of our trustmaker’s estate, thereby limiting federal estate tax exposure AND a portion of the life insurance policy death benefit can be used to cover estate taxes.
ILIT for educating and mentoring future generations, an ILIT is a great forum to instill values in future generation through what I like to call the Crummy process. The IRS requires that a letter, called a Crummy Letter, is to be provided to each beneficiary of the ILIT every year in order to make the trust compliant for tax purposes. The purpose of the letter is just to let each beneficiary know that they are technically entitled to withdraw the proceeds.
ILIT for family business succession planning, an ILIT is a way to keep the life insurance proceeds out of the estate and thereby aggravate what may be an existing estate tax problem.
Step 2 – Select the Right Type of Life Insurance for Your Estate Plan
Second to Die Life Insurance
Choosing the right kind of life insurance for the ILIT is also very important. One possibility is a second to die life insurance policy because the death benefit will only be payable upon the death of the last spouse. This type of life insurance is cheaper than conventional coverage and may be preferred if the surviving spouse does NOT need the life insurance death benefit proceeds.
Guaranteed Universal Life
Another possibility if only a death benefit is sought after is a guaranteed universal life insurance policy. The advantage of this kind of policy is that it isn’t too much more inexpensive than term life insurance and yet offers a permanent death benefit. For seniors, this may be critical because term life insurance for seniors premiums increase with age and may be prohibitively expensive for those over age 65.
Cash Value Life Insurance
Various types of cash value life insurance, referring to permanent life insurance that emphasizes accumulating cash value within in the policy, can be used any number of estate planning goals.
Remember that the types of cash value life insurance vary based upon the formula for accruing cash value within the policy but the most common variations are dividend paying whole life insurance or indexed universal life insurance. For more information, check out our comparison between whole life vs iul.
Practice Tip: If your’re using an ILIT, the key question when deciding is whether the trustee will be empowered and the trust itself will therefore benefit to making use of the cash value.
Cash value life insurance is more applicable to wealth building discussions because cash value is typically used during the policy owner’s lifetime and is forfeited upon death in lieu of the death benefit being paid to surviving beneficiaries.
Wealth Creation with Life Insurance for Seniors
Another part of leaving a legacy is, of course, building one AND part of building a legacy is accumulating financial wealth. So, this section is more of a financial planning overview for seniors and how cash value life insurance can help in wealth accumulation. The key caveat for this section is that a wealth building approach to life insurance takes the traditional paradigm and turns it on its head. Traditional life insurance focuses on the maximum amount of death benefit for a minimum amount of premium whereas a wealth building approach tries to minimize the death benefit and maximize the amount of cash that is put to work in the policy. This shift is a cause for a certain amount of confusion and debate within the life insurance and financial community.
In general, life insurance policy cash value can be used to supercharge the life insurance policy through paid up additions AND the cash can later be freely utilized to take advantage of other investments through life insurance policy loans, allowing for maximum financial leverage and the velocity of money. We have many examples and guides about this wealth building approach on our website.
For seniors, the goal is to speed up the cash value accumulation process either without the life insurance contract becoming a Modified Endowment Contract (MEC) or allowing a MEC intentionally.
Modified Endowment Contracts
Years ago, folks were dumping lots of money into cash value life insurance and for good reason. The simple reason was that there were major tax advantages to be had in dumping large sums of cash into life insurance. The I.R.S., of course, caught on to the trend and came up with a formula to assure that folks purchasing life insurance were in fact doing it for the purpose of acquiring life insurance. This formula, which we’ll refer to as the rules governing modified endowment contracts or the MEC rules is used regularly today to make sure that life insurance proceeds remain qualified for the various tax advantages of permanent life insurance.
If the goal is to follow the MEC rules, then the wealth building strategy would be to maximize the amount of cash that can be deposited into the policy while maintaining the appropriate amount of death benefit. Sometimes, this strategy is accomplished by using supplemental term life insurance to boost the amount of death benefit while the cash value is accruing. The supplemental term coverage will usually drop off the policy after a period of time such as, for example, at 10 years or at age 71.
Single Premium Option
One thing that seniors might consider is a single premium option which is a lump sum payment into a policy in return for a certain amount of death benefit. Paid up additions can still be applied in most cases; however, the thing to be aware of is this approach will generally require more death benefit than if premiums are spread out over a period of time. In general, the longer the premium payment period, the more easy it is to work with the death benefit to maximize the cash value growth. This is a concern for wealth building and not so much if the death benefit is the top priority.
If the scales tip and not enough death benefit is preserved, then the policy will become a MEC.
Practice Tip: There are some situations where a MEC may be desired and these pros and cons are reviewed in detail in our MEC article linked as MEC rules above.
Preserving Wealth with Life Insurance for Seniors
The Asset Protection Benefits of Life Insurance
Before launching into our preferred life insurance companies for seniors, we should make mention of the need for asset protection which is especially critical for seniors. Asset protection refers to protecting your nest egg from creditors and predators through taking advantage of legal strategies. One such strategy is to use life insurance and life insurance products like annuities because most state laws offer at least some protection of the cash value in these accounts.
In contrast, money in CDs and mutual funds and other non-qualified accounts can be levied upon and seized in the event of legal judgments. This is a critical issue for seniors because you simply do NOT have the time to recover from a devastating lawsuit resulting in financial fallout.
You need to be familiar with the asset protection laws of your state of residence, so you can maximize your legal asset protection strategy.