Life Insurance After 65: What Older Canadians Should Know Before Buying or Keeping Coverage

As you move into retirement, your reasons for owning life insurance may change. During your working years, life insurance may have been designed to replace your income, pay off a mortgage or provide financial support for children. By the time you reach your 60s or 70s, some of those responsibilities may have disappeared.

That doesn't necessarily mean life insurance is no longer useful.

Older Canadians may use life insurance to provide for a surviving spouse or dependant, cover debts or final expenses, leave money to children or grandchildren, support a charity, or address certain estate-planning needs.

The important question isn't simply whether you should have life insurance. It's whether the coverage you have, or are considering buying, still matches what you want it to accomplish.

Start by Asking Why You Need Life Insurance

Before comparing policies, identify the financial problem you're trying to solve. For example, you might want money available after your death to:

• Support a spouse or other dependant.
• Pay debts or other financial obligations.
• Cover funeral and final expenses.
• Leave an inheritance.
• Provide money to a charity.
• Address estate or business-planning needs.

Some retirees may discover they no longer need as much life insurance as they once did. Others may need coverage that could last for the rest of their lives.

If you have substantial savings, no financially dependent family members, little debt and enough assets to accomplish your estate goals, additional life insurance may not be necessary. That's why determining your objective should come before shopping for a policy.

Term Life Insurance Provides Coverage for a Limited Period

Term life insurance provides protection for a specified period or until a certain age, depending on the contract. If you die while the coverage is in force, the insurer pays the policy's death benefit to the designated beneficiary, subject to the terms of the policy.

Term insurance generally has lower initial premiums than permanent life insurance. However, premiums can increase substantially when coverage is renewed at older ages, and eventually the policy may no longer be renewable.

Term insurance typically does not accumulate cash value. For an older adult, term coverage might make sense when there is a temporary financial need, such as a mortgage, business obligation, or a limited period during which someone remains financially dependent on you.

Before purchasing term insurance later in life, experts suggest paying particular attention to how long the policy can remain in force and what future premiums could become.

Permanent Life Insurance Is Designed for Lifetime Needs

Permanent life insurance is designed to remain in force for life, provided the policy requirements are met. Because the insurer is potentially covering you for the rest of your life, permanent coverage usually costs more than term insurance.

Permanent policies may also include a cash value component, although features and guarantees vary considerably among products.

Two common forms of permanent insurance are whole life and universal life.

• Whole Life Insurance

Whole life insurance generally provides permanent coverage with premiums and guarantees established by the contract. Some policies may also build cash value over time.

Whole life can be useful when the financial need is expected to exist whenever death occurs rather than disappearing after a specific number of years.

Older Canadians considering whole life insurance should understand the guaranteed death benefit, premium schedule, cash values, and what happens if premiums are stopped.

• Universal Life Insurance

Universal life insurance combines permanent life insurance with an account or investment component. It can provide more flexibility than some other forms of permanent insurance, but that flexibility also makes the policy more complex.

Policyholders should understand which values and benefits are guaranteed and which depend on interest rates, investment performance, fees, or other assumptions. They should also understand how changes in policy values could affect the amount required to keep the coverage in force.

For older adults primarily interested in a guaranteed death benefit, complexity shouldn't be mistaken for additional value.

What About No-Medical-Exam Life Insurance?

Health becomes an increasingly important factor when purchasing life insurance at older ages. Traditional medically underwritten life insurance may involve health questions, medical records, tests, or an examination. A relatively healthy older applicant may qualify for better pricing through medical underwriting.

Other policies use simplified underwriting. These typically involve fewer health questions and may not require a medical examination. Guaranteed-issue policies may have even fewer health requirements, but convenience can come with trade-offs. Depending on the policy, these may include higher premiums relative to the death benefit, lower coverage amounts or limitations during the early years of coverage.

"No medical exam" also doesn't necessarily mean "no medical questions."

Older Canadians researching life insurance for seniors in Canada should compare more than whether an examination is required. The death benefit, premium guarantees, underwriting requirements and policy limitations all matter.

Don't Assume the Cheapest Premium Is the Best Value

Life insurance premiums are affected by factors that may include age, health, tobacco use, coverage amount, policy type and underwriting classification. Price matters, but comparing only the initial premium can be misleading.

Consider:

• How long premiums are payable.
• Whether premiums are guaranteed.
• Whether premiums increase with age.
• How long the coverage lasts.
• Whether there is cash value.
• What benefits are guaranteed.
• Whether there are exclusions, limitations or waiting periods.
• What happens if you stop paying premiums.

Two policies with the same death benefit can work very differently over 10, 20 or 30 years. When comparing life insurance, ask for an explanation of both the guarantees and the elements that could change in the future.

Be Very Careful Before Replacing Existing Life Insurance

Older adults should be particularly cautious about canceling an existing policy to purchase a new one. A policy purchased years or decades ago was issued when you were younger and possibly healthier. If your health has changed, replacing that coverage could be more expensive or difficult.

Before replacing an existing policy, compare its:

• Current death benefit.
• Current and future premiums.
• Guarantees.
• Cash or surrender value.
• Remaining term or renewal provisions.
• Conversion options.
• Policy loans, if applicable.
• Benefits that would be lost by canceling it.

Don't cancel existing coverage simply because you've applied for something new. Make sure the new policy has been approved, issued and is in force, and that you understand its terms before making a final decision about existing coverage.

Review Your Beneficiary Designations

Buying the right policy is only part of the planning process. You should also know who will receive the proceeds. Life circumstances change. Marriage, divorce, death, births, and changes in family relationships can leave an old beneficiary designation inconsistent with your current intentions.

Review your beneficiary information periodically and understand whether your designation is revocable or irrevocable. There can also be important legal, tax, and estate consequences depending on whether benefits are payable directly to an individual or to your estate.

Provincial rules can matter as well, particularly in areas such as beneficiary designations and estate planning. Consider obtaining legal or tax advice when the circumstances are complex.

Provincial Regulation Matters

Insurance in Canada is regulated at both federal and provincial or territorial levels, and insurance agents must satisfy applicable licensing requirements where they conduct business.

For example, someone researching life insurance in Ontario should make sure the person providing advice is properly licensed and should understand the policy before agreeing to purchase it.

Don't feel pressured to accept the first recommendation you receive.

Ask why a particular policy is being recommended, what alternatives were considered, what is guaranteed, what could change, and how the recommendation addresses your actual financial objective.

Life Insurance Should Be Part of a Larger Retirement Conversation

Life insurance is only one part of retirement planning. Older Canadians may also need to consider retirement income, health expenses, housing, estate planning and the possibility of needing help with daily activities later in life.

Life insurance and long-term care planning address different risks. Life insurance primarily provides money after death. Long-term care planning addresses the financial and family consequences of needing help while you're still alive because of chronic illness, disability, cognitive decline or age-related changes.

Long-Term Care Insurance Is Also Available in Canada

Private Long-Term Care Insurance is available in Canada, although individual policy choices are more limited than some other types of insurance.

Depending on the policy, Long-Term Care Insurance can provide benefits when an insured person requires assistance with daily activities or needs care because of an illness, accident, or declining health. Benefits may help pay for care in a long-term care facility or assistance from a caregiver at home.

This can be important because Canada's publicly funded health care system does not necessarily pay the full cost of long-term care or home and community care. Depending on the province, type of care and services required, individuals and their families may be responsible for some costs themselves.

For Canadians who can qualify and for whom the coverage makes financial sense, Long-Term Care Insurance can be considered alongside life insurance, retirement savings, pensions and estate planning as part of a comprehensive retirement strategy.

The goal is different from life insurance. Life insurance helps protect the people you leave behind. Long-term care planning helps protect your income, assets and family while you're alive and require care.

Not everyone will need or qualify for private coverage, and product availability can be limited. Canadians considering Long-Term Care Insurance should compare available policies carefully, including benefit amounts, eligibility requirements, inflation protection, waiting periods and how benefits are triggered.

Canadians may also have access to life insurance policies with long-term care riders or other living-benefit features. These can allow qualifying policyholders to access benefits while they are alive to help address long-term care needs. Availability, benefit triggers and policy provisions vary by insurer and province, so these products should not be assumed to work like the hybrid life and Long-Term Care Insurance policies commonly sold in the United States.

Planning for both possibilities, living a long life and eventually needing care, as well as providing for others after death, can create a more complete retirement plan.

Understand the Differences

There isn't one type of life insurance that's right for every older Canadian.

Term insurance can address temporary needs. Permanent insurance can provide coverage for needs expected to last for life. Whole life and universal life offer different structures, while simplified and guaranteed-issue products may provide options for people who have difficulty qualifying through traditional medical underwriting.

Before purchasing new coverage, determine what you want the insurance to accomplish. Then compare the cost, guarantees, underwriting requirements, policy duration, and limitations. And if you already own life insurance, don't assume replacing it is an improvement.

The best policy isn't necessarily the newest policy or the one with the lowest initial premium. It's the coverage that appropriately addresses your financial needs while fitting into your broader retirement plan — including how you'll protect your family after your death and how you'll prepare for the possibility of needing long-term care while you're still alive.