Our expert team of independent financial advisers gets asked this question a lot when we’re working with our clients on their financial planning. Here is a handy guide that helps answer this question.
This is an insurance policy that is designed specifically for individuals who are typically between 50 and 85 years of age. It guarantees to pay out a lump sum in cash, referred to as a payout or a sum assured, to your loved ones when you die. They can then choose to spend this money however they like.
You pay a monthly premium which guarantees a lump sum is paid out in cash to your loved ones when you die. There is no requirement for you to provide any information about the state of your health.
It depends how much cover you want.
Many people take out these policies to cover relatively small expenses, like funeral costs, so providers often limit how much cover they will provide in order to keep premiums relatively low.
The fact that you are guaranteed to be able to take out this type of policy, and you don’t have to ‘pass’ any health questions, gives you the opportunity to provide for your loved ones whatever your medical status.
This can give you great peace of mind that certain costs, like your funeral, will be covered.
Another benefit is that the premiums are fixed for the whole length of the policy, so you know what financial commitment you are making and can budget for that.
This type of policy also has a simple claims process and, once approved, could be paid out within days.
Although an over 50s life insurance policy may appear to be a simple way to provide for your loved ones after you die, it may not be good value for money. The Financial Conduct Authority has also warned that some promotions for over 50s life insurance policies are misleading people into thinking these policies would cover their funeral costs in full.
Also, it is important that you read the terms and conditions carefully, as some policies may not pay out if your death is a result of alcohol or drug abuse.
If you take a policy out when you turn 50 and you live to your 90s, the payout when you die is likely to be a lot less than the premiums you paid in.
For example, you could take out an over 50s policy when you turn 57, paying £30 monthly premiums to guarantee a payout of £6,000 when you die.
Before you turn 74, you will have paid in over £6,000. This means that all future premiums you pay, for however long you live after that, will be in excess of the payout.
If you stop paying your premiums your policy will be cancelled – there will be no payout covering the value premiums you had paid to that point.
As your payout is a guaranteed sum, fixed when you take out your policy, it is worth bearing in mind that it isn’t linked to inflation and so increases in cost of living could erode the value of your policy. The longer you live after taking out your policy, the more significant this erosion could be. The sum payable may not be sufficient for what you have in mind.
It can take several months for your loved ones to receive the payout after you have died, which can be stressful at an already difficult time. Delays can happen due to estate complications, proof of identity requirements, medical record verification or unclaimed property laws.
You can take out standard life insurance cover at any age from 18 onwards, whereas you have to be at least 50 to take out an over 50s life insurance policy. Another key difference is that you can take out an over 50s life insurance policy regardless of your health status, whereas a regular life insurance policy will appraise various health and lifestyle factors.
Also, an over 50s policy can only be taken out by an individual as a sole policy; regular life insurance policies can be sole or joint.
Before you take out an over 50s life insurance policy, it could be worth considering some alternative options:
If you and your spouse or civil partner are below the state pension age when you die, they could be eligible for a Bereavement Support Payment. At the time of writing, this is a lump sum of £2,500 plus 18 months of £100 monthly payments.
If, when you die, you are claiming Child Benefit, your spouse or civil partner could claim a lump sum of £3,500 and monthly payments of £350 for 18 months.
Note: These benefits don’t apply if you are not married or in a civil partnership.
Some employers provide a death in service benefit – if you die whilst you still work for them, the loved one you nominate will typically receive three to four times your salary as a cash payout, depending on the company’s benefit scheme or the options you chose.
It is also worth contacting a trade union or professional body you are a member of, as they may also pay a benefit when you die.
If it’s a joint account, your spouse or civil partner will already have access to those funds.
If it’s a sole account in your name, your bank should agree to release funds from your current account to pay for your funeral, without waiting for probate to be finalised and for inheritance tax to be calculated. They will need the funeral director’s itemised quote and a copy of the death certificate.
Set aside money each month to build a fund for funeral expenses or anything else you would like to help to financial support your loved ones after you die.
You can include a stipulation in your will that your estate can be used to fund your funeral, however this could take months for the assets, i.e. a house, to be liquidated so your loved ones arranging the funeral will need to fund your funeral upfront.
It could be that a standard life insurance could be better value for you or better suit your needs. An experienced financial adviser can help you to compare your options.
Everyone’s circumstances and needs are unique to them. Our expert team of experienced financial advisers are here to get to know you and help you to work out the best life insurance policy options for you.
You can email us, fill out the contact form on our website or call us on 02380 668407. We look forward to hearing from you.