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Term vs. Whole Life Insurance for People Over 50

By  //  June 19, 2024

Life insurance can be a helpful tool for people over 50 to help protect their loved ones, prepare for retirement, and get their estate planning in order.

Two of the more popular life insurance types for those over 50 are term and whole life insurance, each offering distinct benefits that suit people with different financial goals and circumstances. This article will explore the benefits of term vs. whole life insurance to help you choose the right policy type for your needs.

Term life insurance

Term life insurance is a policy that lasts 10 to 30 years, depending on your choice. It’s designed for people who want significant coverage at competitive rates. Here are some of the advantages it offers:

Affordability

Term life insurance is one of the most cost-effective types of life insurance. It provides significant coverage amounts at a competitive rate since it doesn’t last for life. This makes term life insurance a good option for applicants over 50 who seek the most coverage for their money.

Simplicity

Term life insurance typically only has a death benefit, premiums, and a fixed policy term. There is no cash value, adjustable death benefit, dividends, or other components to manage. Policyholders who want a hands-off approach to managing coverage may prefer this type of policy. 

Several options

Term life insurance comes in several forms:

    • Level term life insurance: Premiums don’t change throughout the policy term. This helps create predictability, making it easier to budget for coverage.
    • Yearly renewable term life insurance: These are one-year policies you can renew at the end of each term. Given the insurer’s reduced risk, premiums are typically more cost-effective relative to level term life insurance. However, each time you renew the policy, premiums can increase.
  • Return of premium term life insurance: If you outlive a return of premium term life insurance policy and do not surrender the policy or allow coverage to lapse, you can receive a refund of premiums paid. In exchange, premiums are usually higher than most other term life insurance types.

Whole life insurance

Whole life insurance generally costs more than term life insurance, but comes with extra features and benefits to justify the higher premiums:

Lifelong coverage

Whole life insurance lasts your entire life, assuming you keep up with premium payments. You never have to renew coverage. This gives you additional peace of mind that your policy will help offer a payout for your loved ones no matter when you pass away. Additionally, it means you don’t have to worry about renewing coverage at higher premiums. Once you buy your life insurance policy, you lock in premiums as long as you have that policy and pay the premium.

Wealth-building potential

Whole life insurance has a cash value growth component that increases with each premium payment. These funds grow tax-deferred at fixed interest. Eventually, you can tap into the cash value in a few ways:

  • Policy loan: You can borrow against the cash value at low rates with no repayment date. The policy may lapse if the loan grows larger than the cash value.
  • Withdrawal: Withdrawing from your policy may have tax consequences and could reduce your death benefit.
  • Surrender the policy: You can also choose to surrender your policy if you no longer need coverage. The insurer may deduct surrender charges from your cash value, depending on how long you’ve had coverage.

The cash value component gives you a flexible source of wealth to tap into so you can boost your retirement funds, pay down debt, give to your heirs, and help achieve other financial goals.

Dividend-paying options

Many insurers offer dividend-paying whole life insurance. If you buy one of these policies, you are considered a company shareholder. That means if the company profits, they may distribute some of these funds to you as dividends. You can receive dividends in several ways:1

  • Cash payouts: The insurer can send your dividend as a check. You can use the funds however you want.
  • Additional coverage: You can ask the insurer to add paid-up insurance to your policy with your dividends. This helps you get a higher death benefit and cash value since you put more money into the policy.
  • Paying premiums: The insurer can put your dividends toward premiums. This potentially reduces your out-of-pocket costs without sacrificing coverage.
  • Repay policy loans: You can ask the insurer to reduce outstanding policy loans with dividends.
  • Leave to accumulate interest: The insurer can hold your dividends in an interest-bearing account. This helps give you a low-risk way to continue earning on your dividends while maintaining the ability to use them at any time.

The bottom line

The optimal type of life insurance for you depends on your goals and circumstances. Term life insurance offers several reasonable and manageable options for people over 50 to help meet different needs. Ultimately, it can work well for a more hands-off policyholder who wants the most cost-effective coverage.

On the other hand, whole life insurance lasts for life and offers wealth-building potential via cash value and, in some cases, dividends. It may work better for people with more complex financial goals who desire lifelong coverage.

Evaluate your goals and budget to select the right policy type for you. From there, gather multiple quotes to benefit from life insurance competition and find the best rates on the coverage you need.

Source:

1 Forbes – Life Insurance Dividends Explained. Updated February 21, 2023. https://www.forbes.com/advisor/life-insurance/life-insurance-dividends/. Accessed June 4, 2024.

Content within this article is provided for general informational purposes and is not provided as tax, legal, health, or financial advice for any person or for any specific situation. Employers, employees, and other individuals should contact their own advisers about their situations. For complete details, including availability and costs of Aflac insurance, please contact your local Aflac agent.  

Aflac coverage is underwritten by American Family Life Assurance Company of Columbus. In New York, Aflac coverage is underwritten by American Family Life Assurance Company of New York:

Aflac life plans – 68000 series: In Arkansas, Idaho, Oklahoma & Virginia, Policies: ICC1368100, ICC1368200, ICC1368300, ICC1368400. In Delaware, Policies A68100-A68400. 65000 series: In Virginia, Policies ICC0965JTO & ICC0965JWO. B61000 series: In Arkansas, Idaho, Oklahoma & Virginia, Policies: ICC18B61JWO & ICC18B61JTO. In Delaware, Policies B61JWO, B61JTO. B60000 series: In Arkansas, Idaho, Oklahoma & Virginia, Policies: ICC18B60C10, ICC18B60100, ICC18B60200, ICC18B60300, & ICC18B60400. Q60000 series/Whole: In Arkansas & Delaware, Policy Q60100M. In Idaho, Policy Q60100MID. In Oklahoma, Policy Q60100MOK. Not available in Virginia. Q60000 series/Term: In Delaware, Policies Q60200CM. In Arkansas, Idaho, Oklahoma, Policies ICC18Q60200C, ICC18Q60300C, ICC18Q60400C. Not available in Virginia. 

Coverage may not be available in all states, including but not limited to DE, ID, NJ, NM, NY or VA. Benefits/premium rates may vary based on state and plan levels. Optional riders may be available at an additional cost. Policies and riders may also contain a waiting period. Refer to the exact policy and rider forms for benefit details, definitions, limitations and exclusions. 

Aflac WWHQ | 1932 Wynnton Road | Columbus, GA 31999  

Aflac New York | 22 Corporate Woods Boulevard, Suite 2 | Albany, NY 12211 Form 

Z2400487                                                                                                                                                 EXP 6/25