If you are wondering whether insurance companies have a cut-off age on whole life policies, the answer is yes.
A cut-off age refers to a maximum number of years that once you reach, an insurer considers you uninsurable. If you are termed as insurable, then they will not sell a policy cover to you.
There is no fixed number of years that serves as the cut-off age for insurance companies. Some have it at as early as 70 years while others have the limit at 85+ years. Nowadays, it is not impossible to get an insurer for seniors whose age is over 85 years.
Why Insurance Companies Have a Cut-Off Age?
Cut-off age limits make it challenging for seniors to secure whole life insurance policies.
Insurers become reluctant to hand out the covers because seniors are just too high a risk to take on. They are more prone to suffering from medical conditions that could be life-threatening, and also the mortality rate for seniors is higher.
All that factored in, it means that if the insurers covered more elderly people, their rate of paying out claims would be higher. This would affect their returns on investments and reduce their profits, hence the cut-off age.
That said, it is crucial to understand how cut-off age influences different types of whole life insurance. Read on to find out more about it.
How Cut-Off Affects Whole Life Policies?
Whole life insurance is divided into two major classifications based on whether the cash value attracts dividends from the insurer or not.
The two categories include participating and non-participating whole life policies.
In this section, we are going to explain both of them further and look at other types of insurance with more in-depth.
#1. Participating Whole Life Policy
This type of insurance policy makes the policyholders eligible for dividend payments from their insurer. The premiums they pay are split into two where a part of it increases the cash value of the policy while the insurance company invests the rest of it.
When the company performs well financially, the dividends are paid out in cash to the policyholders, or they can be used to increase the policy’s cash value. Losses or poor financial performance, however, mean no dividends at all.
Unfortunately for this type of policy, once you reach the cut-off age, the insurance company can no longer accept to cover you. Others may also have a system of determining how insurable you are based on your closeness to the age limit.
#2. Non-Participating Policy
It is the cheapest type of whole life insurance. There is a determined death benefit with guaranteed cash value. The policyholder does not participate in the investment activities of the company and gets no dividends.
The cut-off age general rules apply to this type of insurance in that as long as you have attained the maximum age, you are no longer insurable.
Premiums with this type of policy get calculated based on the length of the insured’s life, which is mostly estimated between 95-100 years. The premiums remain the same throughout your entire life even after you are past the cut-off age. The advantage of owning this type of insurance is that it gives you stability knowing the premiums you pay and the expected death benefits.
Limited Payment Policy
This type of policy works best for people who do not want to pay premiums for the rest of their lives. All the premiums get compressed within a chosen time frame such as 10 or 20 years.
Because of this, the premiums charged here are higher compared to the level type of policies.
From its design, you can see how cut-off age would significantly affect. If your age difference with the limit is less than ten years, the policy would require restructuring, which could result in higher premiums. And that is if you are lucky to be accepted by your insurer as most of them are more likely to deny you coverage.
Single-Premium Whole Life Policy
Just as its name spells out, with this policy, you pay all your premiums in one large sum. This policy is mostly taken on by investors with large amounts of cash since the payments usually run in hundreds of thousands or more depending on the death benefit you want.
The drawback with this policy is that an age limit has significant effects on it because as a senior whose age is closer to the cut-off; you are a very high-risk client.
Insurance companies usually need time to invest the large upfront payment you make so that they can make profits and reduce losses when they make your payout.
Seniors closer to the cut-off age present a challenge because there is a very high likelihood they will die sooner. The insurer could, therefore, have to pay out death benefits before making any significant returns from the lump-sum premium.
Indeterminate Premium Policy
The catch with this type of insurance lies in varying premiums. The premiums you pay each month will be determined by the financial performance of your insurer and how their actuaries predict the expected market changes.
If your insurer makes high returns, then you will get lower priced premiums. The vice versa is also true. However, the increase in premiums has a maximum limit.
The drawback with this type of policy is that heavy losses incurred by your insurer will dramatically increase your premiums. And this is worse for seniors since they get charged high premiums due to their ages being closer to the cut-off limit.
Whole Life Economic
This is a participating type of policy. The insured earns dividends from the insurance company, and these earnings are in turn used to make purchases for term life insurance on behalf of the policyholder.
The main advantage of having this type of policy is that your death benefits consistently increase provided the insurance company is making profits. However, significant losses may substantially reduce your death payout.
Unfortunately for this type of insurance, securing it becomes an uphill task as you approach the cut-off age. Because of its nature, insurance companies prefer clients who are at least ten years younger than their cut-off limit.
We also have an article on modified whole life insurance, don’t forget to check that.
The Best Age to Get Whole Life Insurance
With the issue of a cut-off age, most people may wonder about which period in their life is the best time to secure a whole life cover. The pressure may even mount since the more you age, the closer you get to the age limit, and this translates to ever-increasing annual premiums.
Statistically, the majority of the people with whole life insurance policies took them while they were past the age of 40. Younger generations avoid buying insurance cover because their focus is mostly on current bills, and they do not want to add new policies on to the list.
The catch with insurance is to buy a policy as early as you can. The younger you are, the cheaper it is in terms of annual premiums.
Take, for instance, if you bought a level whole life policy at the age of 30, you would be charged very low premiums because you are young and healthy. These affordable premiums are what you will pay for the rest of your life even when you reach closer to the cut-off age or surpass it.
Getting a Whole Life Policy Past the Cut-off Age
Once you have passed the age limit that your insurance company is willing to offer a policy, there are still a few options that you can try your luck with.
Since there is no universal age for insurance companies on the cut-off age, there is a slight possibility of finding one with an age limit ahead of your years.
For example, if you are 76 years old and your insurance company’s cut off age is 75, you can still shop for insurance companies that still offer policies for seniors over 80 years old, like this one.
If you are out of luck on the first option, there are still two more that could be available, but they will be costly.
One is the single premium whole life policy. With a little bit of negotiation, there is a small chance to convince your insurer to grant you a policy if you pay them one huge bulk sum.
However, you may need to work with a seasoned agent who can turn the tides of the negotiations in your favor.
Alternatively, you can always visit guaranteed insurance providers. Although they might take you p as a client, there are several drawbacks you should know. The premiums will be very high compared to the typical insurance plans, and the death payouts will be little. Most of these companies rarely grant death benefits that are more than a few tens of thousands.
To summarize, cut-off age affects various types of whole life policies differently although the changes are slight. To reduce your chances of missing out on an insurance policy, it is better to buy one while there is still a significant difference in your age and the cut-off limit by your insurer.