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Over-50s life insurance offers a lump sum to people aged 50 to 85 when they die. Yet it is worth it? Whilst it can seem easy and cheap (starting from as little as £3.70 per month), there is a risk that you end up paying more into the policy than you eventually get out. Below, our team shows how over-50s life insurance can sometimes work, although individuals should exercise care and consider seeking professional advice first. We hope this is helpful to you. If you want to discuss your own financial plan with us, please contact our team for more information or to access personalised financial advice:
020 8366 4400 or enquiries@cedarhfs.co.uk
Over-50s life insurance: an overview
As financial planners, we believe strongly in planning for the unexpected to help safeguard your finances – such as premature death in the family. As people get older, however, many protection policies get more expensive as insurers compensate for the higher risk of making a lump sum payout to customers. Over-50s life insurance is, on the surface, supposed to offer an affordable option to people between the ages of 50 to 85.
Similar to whole-of-life insurance policies, you pay a monthly premium for a guaranteed payout when you die. There are no questions about your health during the application (which is very likely to be successful). The payout can later be used by your loved ones as they wish, such as helping to cover your funeral costs.
The risks of over-50s life insurance
There are at least four “hidden risks” to over-50s life insurance to be mindful of. Firstly, if you miss even one monthly payment for your policy, then your provider may not pay out. One story tells of a woman whose mother died and a final payment was missed as the family reeled from the loss. The provider initially refused to pay out, although eventually acquiesced after the public relations became unbearable. Therefore, if you do take out a policy, consider setting up a direct debit to ensure no payments are missed after your death.
A second risk is inflation. A promised lump sum from a policy may seem attractive at first. Yet in many years time, it will be worth lower than it is today (in real terms). One way to counter this is to opt for an inflation-linked over-50s life insurance policy, but these are fewer in availability and your monthly premiums will rise over time. A third issue is the “policy prisoner” effect, where you might end up trapped in a policy that has locked you in. Insurance providers, by contrast, often reserve the right to change their terms as they see fit (e.g. reducing the payout or raising the premiums). Leaving an over-50s life insurance policy, although possible, will almost certainly give you no payout. A final potential problem is that people can end up paying in more than they get from the lump sum. Suppose you take out a policy for £7 a month at age 65 – offering a payout of £1,243 on death. If you divide the latter by £7, then you will start to lose money on the policy after 178 months (15 years). If you are aged 65 and in good health, however, then you may live far longer than this – perhaps 10 years, or more.
How to use over-50s life insurance
If you are in poor health, then an over-50s life insurance policy could be a good option (since your application is near-guaranteed and requires no health declarations). For instance, if you are morbidly obese, a heavy smoker or have been diagnosed as terminally ill, then the maths can work out in your favour. Suppose you are 65 and you have just been diagnosed with stage 4 cancer. In rare cases, the survival rate can be several months or even over a year. If you took out an £80-per-month policy which pays out £16,000 upon death, for instance, then you might only pay £1,000 in just over a year.
What if you are in good health, aged over 50 and need to boost your financial protection? The cost of “normal” life insurance, critical illness cover and income protection can be far higher at this stage of life. Here, it can help to seek professional advice to discuss your circumstances. Almost always, a good starting point is to have a strong “emergency fund” containing at least 3-6 months’ worth of living expenses. Hopefully, by your 50s you have already built up strong equity in your home and you are not too far away from paying off your mortgage. Also, your dependents (e.g. young children) may be nearing financial independence. These factors can reduce the need for life insurance, as your assets are better placed to cover your liabilities if, for instance, you died prematurely or could no longer work due to ill health or injury.
Yet it may still be necessary to build further protection into your financial plan. Does your estate have enough liquid assets to pay for your funeral, at short notice, for example? This could be achieved by paying in advance for a funeral plan. Income protection and/or critical illness cover may still play a role in certain financial plans – e.g. until you reach your retirement date. Speak with an adviser to consider your full range of options with the best information and insight.
Conclusion
Interested in discussing your financial plan with an experienced financial adviser? Get in touch today to discuss your financial plan with a member of our team here at Cedar House via a free, no-commitment consultation:
020 8366 4400 or enquiries@cedarhfs.co.uk