Are Life Insurance Companies Exploiting Seniors?

Luciano Meirelles  Vov e Vov copy
Insurance companies are
exploiting seniors.
Photo by Luciano Meirelles

Canada’s 2011 Census confirmed what we all were sure was coming. Back in 1971, the National Post reports, only 8% of us were 65 and older, and now, that percentage has ballooned to 14.8% — which is nearly 5 million seniors out of 33.5 million Canadians. It’s the highest number of people over age 65 that there has ever been in this country.

With Canadian baby boomers approaching life as senior citizens, insurance companies are scrambling to figure out what’s the best way to profit from this market segment.

Seniors pose a unique opportunity and risk for Canadian insurance companies.The opportunity lies in the fact that these people are older, so automatically, the premiums generated are going to be higher than other segments of the population. However, they also have a greater risk of dying over a given period of time, so insurance companies will probably have to pay out sooner than usual.

So how are Canadian seniors disadvantaged when trying to get life insurance?

LSM Insurance President Chantal Marr notes the following:

1. Seniors are obviously paying a much higher premium than younger applicants, as stated above.

For example, a 55-year-old, male non-smoker pays $718 a year for $100,000 of Term 20 life insurance, but a 65-year-old male would pay $2036 a year for that same $100,000 worth of term 20 life insurance. This is almost three times the normal rate.

2. Seniors have to go through a much more stringent life insurance eligibility screening than younger applicants, especially at a larger face amount.

3. Seniors are bombarded with direct mail and other advertising that solicits them to buy no-medical life insurance plans. However, what applicants over 65 and in otherwise good health don’t know is that they would get much better value by applying for a traditional life insurance policy than going for one of these direct no-medical plans.

4. On the other side of that coin, seniors with health issues would still likely be much better off shopping for a no-medical life insurance policy through a broker, instead of one of the popular guaranteed-issue plans sold by the insurance companies directly. This is because direct guaranteed-issue plans offer the most expensive form of coverage and have a waiting period for non-accidental deaths. This means that if the insured dies in the first two policy years, their death benefit will be limited to a return-of- premium plus interest.

It’s not impossible to get a good deal on life insurance as a senior, but it definitely takes careful consideration. Be warned that the wrong decision could translate into paying thousands of dollars of extra premium unnecessarily.

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  • Jarrod
    July 9, 2013 at 11:16 pm

    I think in order to assert that life insurance companies are in fact taking advantage of a particular age segment you would need to look at the actuarial information that the insurance companies use to ascertain appropriate premiums and then prove that the cost increase on the insurance is disproportionate from age group to age group. All you have really done is proven that its more expensive to buy life insurance as you get older. Additionally it seems you are making some grand assumptions by calling the 55 year old group the “normal rate”. A 45 year old only pays $275 per year for the same coverage which is a similar premium reduction. While you are not inaccurate it seems that you are only telling part of the story.

    • LSM Insurance
      July 10, 2013 at 10:58 am

      Thanks Jarrod – you make a good point. We are raising the question we are not actually saying that seniors are being exploited on all fronts. Certain Direct Carriers Guaranteed Issue plans are targeting seniors when many of these people could in fact get traditional life insurance, these people are not meeting with a broker to explore there options. So I feel they are being exploited. Regards,

  • Jason
    July 8, 2013 at 4:30 pm

    Good post. It’s true that it’s one of the fastest growing populations, and there are a lot of seniors who are not fully prepared with their life insurance needs. By far the best piece of advice here is to go through the underwriting process. While the guaranteed issue policies are nice for those who can’t get insurance otherwise, they truly are a burden for someone who can qualify on their own. Take the time seek out a reputable company is who favorable to your health considerations and you’re likely to pay a lot less than a guaranteed policy premium.

    • LSM Insurance
      July 8, 2013 at 6:54 pm

      Hi Jason,

      You make an excellent point that seniors in good health should go for a fully underwritten policy rather than a simplified issue or guaranteed issue plan.

  • William Shung
    July 8, 2013 at 9:14 am

    This is a very good article. I re-quote (2) – “Seniors are bombarded with direct mail and other advertising that is soliciting them to buy no medical life insurance plans. However, what applicants over 65, and in otherwise good health, don’t know is that they would get much better value by applying for a traditional life insurance policy than going for one of these direct no medical plans.” The advertising and direct mail bombarding seniors give a wrong impression that seniors can get guaranteed coverage at a low cost. We must bear in mind that the word “guarantee” comes with a cost. You won’t be getting a guarantee without paying more for it. The marketing piece usually says you can get life insurance for as low as $xx a month without mentioning the coverage amount. Life insurance should be bought through a good advisor who would clearly explain the facts. Consumers should be fully aware of all options available before deciding what to buy.

    • LSM Insurance
      July 8, 2013 at 11:34 am

      You make an excellent point William. Too many seniors are buying these plans without exploring their options. Quite often much better plans are available.