The global Coronavirus pandemic has led to an increase in the number of people applying for and claiming on life insurance both in the UK and around the world. This rise has been particularly prevalent within the over 50s demographic.
In the UK we have an increasingly aging population. In the last government Census 18% of the population was classified as being over 65. This was up from 16% in the 2001 Census.
But during these increasing uncertain times which policy is the right one for you in order to best protect the financial future of your loved ones?
Below, FCA regulated life insurance broker Reassured to provide their top tips for our over 60s residents.
Over 50 Plans, The Popular Choice
The most popular policy type for the senior demographic is an over 50 plan.
Why? Because acceptance is guaranteed if you are a UK resident aged between 50-80 and there are no medical questions to answer during the application.
Whilst this option is suitable for many, especially if you have experienced medical problems, there are a number of key factors to consider.
Consider the Waiting Period
All over 50 plans come with what is called a waiting period, (sometimes referred to as a qualifying period).
This is a period of time, usually 12 or 24 months, at the beginning of the policy when your loved ones cannot make a claim if you pass away of natural causes. However, any premiums paid in will be returned to your beneficiaries.
Obviously the shorter the waiting period, the greater the chances of your loved ones securing a full pay out from your selfless investment.
Be Wary of the Free Gift Incentive
Most specialist insurers, such as SunLife or Legal & General, offer a free welcome gift incentive when you take out a policy through them. The gift normally takes the form of an £100 Amazon or M&S gift card.
Whilst everyone loves a freebie, it is more important to consider the cost of your ongoing monthly premiums.
When you consider you are likely to be paying into the policy for 15-20 years, it becomes clear that securing the most cost-effective premium is the most important long-term consideration, as this saving over the lifetime of a policy is likely to dwarf the value of the free gift.
You Could Pay More into the Policy than It will Pay Out
As with any lifelong policy, it is possible to pay more in than it will ever payout. This is simply because no one knows how long they are going to live.
Although some over 50 plans allow you to stop paying your premiums after you turn 90, whilst the cover remains in place. If you are lucky enough to live well into your 90s this could represent a significant saving.
Funeral Plans Could Make More Financial Sense
Accordingly, to research from SunLife the average cost of a funeral is currently £4,417. That presents a 130% increase over the last 16 years and this trend is forecast to continue.
With all the associated costs that come with passing away, professional fees to administer the estate, venue hire, catering, flowers, transport etc, the national average cost of dying is estimated to be a staggering £9,493.
Many people take out over 50 plans to cover these rising funeral costs, however if you only want to cover funeral expenses and do not need to leave an inheritance, a funeral plan could make more financial sense.
A funeral plan enables you to pay in advance for your funeral, locking in the current rate and avoiding rising costs. So, unlike an over 50 plan it is not subject to inflation.
In Good Health? Consider Whole of Life Insurance
The beauty of an over 50s plan is that acceptance is guaranteed and no medical is required.
However, if you are in your senior years and in good health, whole of life insurance could be a great option.
Whole of life cover enables you to secure a much greater cover amount. Whereas over 50 plans have a cover limit of £25,000, whole of life can offer up to £1,000,000.
If you wish to cover funeral plans, leave an inheritance, as well as meet future living costs for a partner, whole of life cover could work well.
In order to secure this significantly higher cover amount you will be asked medical questions during the application process to reassure the insurer of the level of risk you pose.
However, if you are fit and healthy why not take advantage, because the insurer has a greater picture of your health it is often possible to secure lower premiums vs an over 50s plan.
Write your Policy in Trust, (Avoid 40% Inheritance Tax and Probate)
Generally speaking, the proceeds from your life insurance policy (whichever option you choose) will form part of your estate.
The current inheritance tax (IHT) threshold is £325,000, anything over this figure is taxed at 40%. If you are passing your property to your children, this threshold increases to £500,000.
When you consider the average cost of a UK property is currently £231,855 and your estate includes any property, savings, investments, cars, possessions in your name, as well as your life insurance, it is easy to see how in many cases our estates can easily exceed this threshold.
However, there is a solution which can help, and it does not need to cost you a single penny. Writing your life insurance in trust.
When you write your life insurance in trust the proceeds avoid forming part of your estate and are therefore not subject to IHT. You pass responsibility for the policy onto a trustee/s, much like an executor of a will, to carry out your wishes. A trustee is normally a solicitor or family member but can also be a beneficiary.
What’s more, because your loved ones will not have to wait for probate to be granted, they can also expect a much faster pay out too.
These are strange times for all of us and for many life has never felt so fragile, further emphasising the need for some form of life cover to protect our nearest and dearest.
However, as detailed above you have multiple policy options available to you, so take your time to consider which one best meets your unique needs.