Our life expectancy is now 79.5 years for men and 83.1 years for women. Back in the 1970s, the average life expectancy was just 71.
Whilst this is a welcomed development it does mean we need to provision for living longer.
But what are the life insurance options available to those aged over 60?
We asked the award-winning life insurance broker Reassured to help explain the various options available.
Term-based life insurance
Although it is possible for those in their 50s to secure traditional term-based life insurance, generally the high premiums demanded do not make it worthwhile. Generally speaking, term-based policies are more suited to younger people.
As we get older, what we need to protect changes. For example, first-time buyers in their 20’s or 30s often take out decreasing term life insurance.
This is usually the cheapest option, where the cover amount decreases over the term in line with a repayment mortgage balance. This protects what is probably your biggest ever investment, your property, but not much else.
When you have children you will probably require a greater level of protection, to cover not just your mortgage but also meet future living costs if you were no longer around.
Both decreasing and level policies are term-based and only provide protection for a set time frame. For example, until a mortgage is cleared or until the children are independent.
Over 50s plans & whole of life insurance
As we pass 50, unfortunately, we become a greater risk to an insurer and thus traditional life insurance is harder to secure, (or the costs simply don’t stack up).
At this stage in our lives the mortgage is often largely paid off and the children have left home and are financially independent.
However, you do have to protect against other things, such as rising funeral costs or providing an inheritance for loved ones.
So what next?
The two most common options for those aged 60 plus is an over 50s plan or whole of life insurance.
Both these options are forms of life assurance. Life assurance pays out when you die, whereas life insurance pays out if you die during the policy term.
But which policy type is right for you and why?
Guaranteed over 50 plans
Over 50 plans are a very popular and accessible way of securing cover protection.
The key benefit of these plans is, unlike traditional life insurance, they don’t require any health questions or a medical. In fact, if you are a UK resident aged between 50-85 you are guaranteed acceptance from most insurers.
As a result, if you are in poor health or have experienced medical problems then this could be a good option for you.
One thing to be aware of, however, is something called the waiting period, (sometimes called a qualifying period).
This describes a period of time, usually 12 to 24 months, at the beginning of the policy where a payout is not issued. The insurer is basically mitigating their level of risk.
If you do pass away within the waiting period, the premiums you have paid in until that time will be refunded to your beneficiaries.
Some over 50 plans allow you to stop paying your premiums when you reach a certain age, for example 90, whilst still enjoying the cover. If you live to a ripe old age, this could be quite a saving.
Over 50s plans:
- Good option if in poor health
- Guaranteed acceptance if aged 50 – 85 years and a UK resident
- Quick & easy application
- No medical required
- 12 – 24 months waiting period
- Guarantees to payout after you are gone
- Premiums could stop when you reach a certain age
- No cash-in value
- Monthly premiums start from £4-a-month.
Whole of life insurance
Whole of life insurance is less well-known, however, could be a very good option for you.
Unlike an over 50s plan, here you will be asked health-related questions during the application. There is also a good chance you may need to undergo a medical exam.
However, if you are in your early 60s and in good health there should be nothing to fear. Actually, this could be an opportunity to prove to the insurer your good health and thus secure favourable monthly premiums.
In fact, a regular whole of life plan could provide 40% more cover than its more well-known relation, the guaranteed over 50 plan.
As with over 50 plans, there is no set term – a whole of life policy lasts as long as you do.
One important consideration is how long you will be paying your premiums. This is hard, because without sounding morbid, no one knows how long we are going to live.
When we retire our level of disposable income changes too, so you need to make sure you are able to continue paying your premiums well into old age.
What’s more, if it transpires you cannot afford to keep paying your premiums you will lose your cover and the investment made would have been wasted.
Lastly, although you are able to secure a greater sum assured with whole of life, because we do not know how long we will be paying premiums, it is possible to pay in more than your loved ones receive in a payout.
Whole of life in summary:
- Guarantees to payout after you are gone
- Greater sum assured possible, (compared to over 50s plans)
- Good option if you’re in your early 50s and in good health
- You pay premiums for as long as you live
- Hard to secure an affordable policy if in poor health
- Longer application process
- Application includes health questions and/or a medical
- Reviewable or guaranteed premiums possible
- No cash-in value, (non-investment policies).
A good option, if you only need to cover the cost of your funeral (and nothing else), is a prepaid funeral plan.
The main benefit of a funeral plan is that it allows you to pay for your funeral locking in today’s rate and avoiding the rising costs.
The average cost of a UK funeral is now £4,078 (source: SunLife.co.uk). When you add all the associated costs, like venue hire, professional fees, memorial and car hire the total average cost comes to £8,905.
As with most things, the cost of funerals are projected to continue rising steeply over the coming years.
However, if you want to cover other expenses like an outstanding debt or to provide an inheritance, obviously a funeral plan is not suitable.
Some people take out multiple policies simultaneously to cover different aspects of their life. Budget permitting, this can be a great option.
How to secure the right policy, at the best price
Everyone’s individual circumstances are different and you need to establish which policy option works best for you.
Take some time to think about:
- Available budget
- The age of your children
- Level of personal debt
- Size of personal savings.
Even after you decide on a policy type, it is important to understand that the monthly cost of premiums can vary between insurers.
The best way to ensure you secure the right policy at the best price is to compare multiple quotes.
You can do this yourself by researching online (time-consuming), you can use a comparison website (may not include all providers) or you can use an FCA registered broker.