Many people think that term life insurance is extremely difficult to understand. They also believe that one has to go through a lot of frustrations when they decide to buy it. This is not true.
To understand what term life insurance is all about, it is necessary that we briefly look at its history. Later, we will then look at how it works and the cut-off age.
“Most of the insurers don’t sell term plans to clients over 65 years. But, few companies do for up to 70 years. Hence, we can say cut-off age for term life insurance is 70 years.”
Let’s start with the historical background of the term policy.
Term life insurance traces its roots to 1706. This is the time when Perpetual Assurance Amicable Society started to offer insurance services to its members.
Members paid some fees which were later shared out to the wives and children of the deceased. The company restricted itself to insuring people under the age of 55.
But, after some time, the demand for a cover that could cater to the needs of people aged more than 55 years arose. It led to the formation of another insurance company in 1755.
The company was founded by Edward Moses. It was referred to as the Society for Equitable Assurance.
By 1762, equitable was a mutual insurer who offered age-based premiums. They based the premiums on the mortality rate.
However, it played a critical role in revolutionizing insurance. Its systems are now being used by modern life insurance companies across the globe.
In the United States, the sale of Term life insurance started in the 1760s.
During that time, the insurance companies were formed to cater for children and women. It was meant to meet their needs after the death of their fathers or husband.
But, as time went by, they evolved into entities that catered for anyone with insurable interests.
With time, it led to the creation of Universal Life Insurance and Term Life Insurance. They were meant to cover specific customer needs. Besides, other types of insurance covers came up.
How It Works
Term life insurance was demonized from the start. It was misunderstood and is still confusing even in the modern world.
However, it is simple and straight forward. There is nothing to worry about the cover.
The cover simply allows the policyholders to make some payments at a fixed rate. In return, they got covered for a limited period.
But, one of the features that have contributed to its demonization is that once the term expires, the previous rates are ignored. There is a need to renegotiate the premium payment.
Also, the client may forgo the old coverage and obtain a fresh cover instead. Thus, the insured has the option of renewing the coverage. They can renew it at a higher rate or get new coverage from another provider. Alternatively, they can choose to have the coverage lapse.
Now, before we delve into the details of term life insurance cut-off age, let’s look at what term life insurance is all about.
As the name suggests, it is a policy that provides coverage for a determined period. The policy is designed to protect one’s dependents when they breathe their last. Thus, when the policyholder dies within the term, the company releases the pay-outs to the beneficiaries.
Typically, most insurance companies insure the policyholders for a term of 30, 20 and 10 years. Even though, it is possible to talk to your insurer and come to an agreement over the term.
Cut-Off Age for Term Life Insurance
At this point, I think we can now discuss the cut-off age for the cover.
First, the applicant must be at least 18 years old. If they are under 18 years, the parents can organize to take the policy on their behalf.
Ideally, taking the policy when younger than 25 years is the best thing you can do. However, if you are past the 50-year mark, term life insurance may not be the best for you.
For people aged over 65 years, it may not be easy for one to get a term life cover.
Most insurers have their cut-off age at 65. Past 65 years, the company shoulders a greater risk to pay full benefits if the insured died.
However, with the improvement of medical science, life expectancy is also increasing. Considering this, few insurers are selling term plans to age up to 70 years.
Most people die between 65 years and 75. So, allowing people to take a cover at this age is risky. It means that the insurer must be ready to pay full benefits before the insured covers the cost of pay-out.
Notice that term life insurance is quite popular. It is less expensive compared to other covers and comes with more benefits. The only problem with it is that if you live past the date the policy expires, all the money you will have paid as premium will go up in smoke. You cannot get it back.
To mitigate this, insurance companies offer renewable term life insurance. It gives the policyholder an option of renewing the cover.
They can do this without the need of being taken through the qualification process. It gives people who are over 65 years a chance to renew the policy when the term expires.
Risk Factors When Planning to Take the Cover
There are plenty of risk factors that must be considered. These factors may make it difficult for a person to qualify for a term life insurance even if they are of the right age.
Applicants diagnosed with cardiovascular issues, high blood pressure, and terminal diseases cannot qualify for the cover.
Also, obese persons, those who smoke and abuse substances may not be allowed to take the cover. Similarly, people engaged in dangerous job activities may be excluded from the cover.
Note that term life insurance is temporary. In most cases, it does not get renewed. Besides, the policyholder is not entitled to the premiums paid if they survive the term. Also, the insurance could deny you coverage if you are past a certain age.
- There is a restriction when you can buy a cover. It means that it may not be possible for you to buy the cover when you need it most.
- Although it is a low-cost cover, term life insurance becomes more expensive as one grows older. Renewing the policy at the age of 70 may be more costly.
- The term life insurance comes with plenty of restrictions. So it may not be available to everyone.
- Past the age of 65, most providers will restrict the term to 5 years. Others may offer you annual renewable term life policy which is not cheaper either.
For those who can afford the premiums, buying a term life insurance when you are past the 80-years mark is good. It is the best thing you can do for your dependents. So, if your health and age are not hindrances, consider a term life cover.
Types Available for Seniors
As mentioned earlier, term life insurance is of two types.
We have the non-renewable type and annual renewable term life insurance. For the renewal term life, the policy may be renewed every year.
As you renew the policy, you will be expected to pay more premiums. The policy sets the limit on how many times you may renew it. Also, the maximum age limit varies from state to state.
However, some states cap it at 85 while others cap it at 80 years.
In some cases, a term life policy can be changed to a permanent policy. This can be done at the time it expires. When you do this, you preserve the coverage. It means that your family will get the benefits. It may even have your final expenses covered when you breathe your last.
The option to renew term life insurance up to the maximum may be available.
Unfortunately, most people give up on the way because it becomes too expensive to renew. So those who may not afford to renew it end up discarding the whole program. They lose whatever money they have spent on the premiums.
If the policy does not offer the surrender option, it may not be the best option for you. So in a nutshell, the term life insurance makes less sense as one grows older.
Most seniors prefer buying a whole life policy than a term life policy. Typically, at this age, the term life cover is more expensive. The premiums for the two types of policies may be the same. But the whole life policy has more advantages than the term life policy.
For instance, the whole life policy comes with a cash value saving. The policyholder can use these savings any time. Besides, the permanent policy is lifetime coverage. So, it will not stop at a predetermined age as it is the case with term life insurance
Generally, a term life insurance is only beneficial if you die within the term. If you live longer it may not be of help.
For instance, buying a policy worth $50,000 may need that you pay $5,000 per year. If you live longer and die at the age of 90, chances are that you will lose your money.
But, the good thing about Term life insurance cover is that it exchanges death benefit with premium payment. So, it guarantees to pay the benefits if you pay the premiums as agreed and die within the age limit.