Term Or Permanent Life Insurance In Retirement?

Think you won't qualify for life insurance in retirement? Guess again.

"It's easier to qualify than in the past as underwriting has gotten better," says Rafael Rubio, president of Stable Retirement Planners in Huntingdon Woods, Michigan.

The policies don't come cheap, and just because you qualify for life insurance doesn't mean you should get it. Life insurance only makes sense for retirees who use it in estate planning and can afford to keep paying the premiums, which can be thousands of dollars per year. Otherwise, the policy will lapse, coverage will end, and you will have wasted your money.

There are two main categories of life insurance - term and permanent - and the one you choose can determine whether you will qualify for the policy. Term life insurance provides a death benefit for a specific time, such as 20 years. When the term expires, so does your protection.

Term policies tend to have a maximum age limit, typically 85 years old, says Greg Klingler, director of wealth management at the Government Employees' Benefit Association in Fort Meade, Maryland.

Term policies are less expensive and make sense for temporary needs - for instance, if you plan to work part-time for the first decade of retirement and want to protect that income for your spouse. A term policy is generally not a good fit for protection meant to last your entire life and beyond, such as covering end-of-life expenses or leaving an inheritance.

By contrast, permanent life insurance policies won't expire as long as you pay the premiums. These policies can include additional benefits to pay for long-term care and a critical illness, which a term policy typically won't cover.

Permanent life insurance is also more likely to accept older applicants, with some companies selling policies to healthy applicants up to age 90.

There are variations of permanent life insurance, depending on the premium and benefits.

For example, universal policies let you adjust the premiums each year whereas whole life premiums are inflexible.

You'll have a better shot at qualifying if you set up permanent life insurance as a second-to-die policy. This means that the death benefit won't be paid until you and your spouse die. If your goal is estate planning, these policies can help you qualify for a lower rate and more coverage because a joint life expectancy is longer than just one person's.

If you have serious health issues, you could sign up for guaranteed issue life insurance. As the name implies, these policies generally can't turn you down no matter what your health is like. But they charge higher premiums for smaller death benefits and impose restrictions. For instance, the policies won't pay out if someone dies during the first two years. Still, if you need life insurance but can't qualify for other options, Rubio says this type of policy may be your best option.

David Rodeck is a contributing writer for Kiplinger's Retirement Report.