Life insurance for the over 50s

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Over-50s plans

Over-50s life insurance plans are different from other types of life insurance, although they work in similar ways.

Essentially, you pay a premium each month and when you die your beneficiaries will receive a payout.

However, there is a catch with a lot of these policies, in that the payout is capped but your payments in aren’t. So, depending on how long you live, you could pay in far more than your loved ones will get out.

There are over major drawbacks with over-50s life policies that you should consider.

Here we explain whether life insurance could be suitable for you and how to get the most from it.

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Pros and cons

By the time you reach your 50s, taking out a traditional life insurance policy is more expensive than if you’d done it in your younger years.

The benefit of an over-50s plan for some people is there are no medical examinations, so if you’re not in the best of health you can still get covered. You can choose the level of payout based on how much you’re willing to pay in each month.

Over-50s plans often have no medical examination (image: Shutterstock)

The premiums for over-50s life cover are also more likely to be fixed.

On the downside, payouts are much smaller than you would receive from an ordinary life insurance policy and are typically fixed.

MoneySuperMarket mentions a maximum of £25,000, whilst MoneySavingExpert's analysis of several payouts puts them around the £5,000 - £6,000 mark.

Furthermore, what your family can actually buy with the fixed payout will be eroded by inflation, particularly over the space of decades.

You should also note that a claim won’t be paid out if you die in the first year – for some policies this extends to two years, so make sure you check the fine print before signing up.

What's more, if you stop your payments before the end of the plan your money will be gone and you'll get nothing in return.

Common mistakes to avoid when you’re about to retire

Applying for life insurance

If over-50s life insurance is suitable for you then it's important to make sure you get the best deal.

Shopping around is, of course, crucial – as is reading the terms and conditions in detail (and getting independent advice if you're not sure).

It's important to be honest: while over-50s don't have a medical assessment, you don't want to give the insurer an opportunity to refuse a payout on the grounds that you didn't disclose something.

Things like long holidays or business trips away, depression, drug use, stress, anxiety, moles and allergies count, so confess everything. To learn more about how insurers get out of paying read: when life insurance doesn't pay out.

You'll also need to decide whether you want a joint or single policy. A joint policy will pay out once on the first death, but two single policies is double the cover and ensures the surviving partner has protection in place for any dependents he/she may leave behind.

Finally, consider writing the policy 'in trust'.

This is free and means the payout doesn't become part of your estate and is more efficient for Inheritance Tax purposes, plus your descendants won't have to wait for your estate to be divided.

For more on passing on wealth and reducing tax, read our complete guide.

It's not the same as funeral cover

Funeral costs are a big concern for families: data from 2018 put the total 'cost of dying' at almost £9,000, with the funeral costing £4,078.

However, an over-50s life insurance policy may not be the best way to cover these costs.

Some life insurance policies offer a discount on funerals arranged through them or an extra payout, but check this will make a realistic dent on funeral costs.

Funeral costs should be considered (image: Shutterstock)

Instead, you could consider a prepaid funeral plan, which locks in today's prices, although many won't cover the entire cost of the funeral so choose one with care.

Whilst undoubtedly grim, funerals are like any other area of finance, where a bit of shopping around could save you a considerable amount of money, particularly as cheaper methods such as direct cremation grow in popularity.

There’s more information on the pros and cons in The best way to pay for your own funeral.

Alternatives

Over 50s life cover definitely isn't for everyone, so you might want to consider 'traditional' life insurance.

To find out more about life insurance, read our guide. You'll need to pick between level term, decreasing term, increasing term and guaranteed whole-of-life.

Level term pays out a fixed sum in the event you die during the life of the policy, otherwise known as the term. This type of cover generally expires at a certain age, such as 65 or 70, depending on who you buy it from.

Decreasing term, as the name suggests, falls in value as the term goes on, so is suitable if you only want to cover something like a repayment mortgage, which will decrease over time.

Increasing term means the amount paid out will grow, a good option to inflation-proof your policy but less useful to over-50s. Guaranteed whole-of-life plans are generally more expensive

Family income benefit plans pay out a monthly income rather than a lump sum, useful if your family wouldn't be confident managing a huge amount of money at once.

In theory, traditional life insurance would pay out more than an over-50s plan and always more than you’ve paid in. However, you may need to undergo a medical examination before you can get cover and the cost of your monthly premiums will depend on your health.

Another option would be to save and/or invest part of your income, ideally into an ISA, so there's money available should you pass away. That way your family not dependent on a life insurer to pay out.

This doesn't protect you as well against uncertainties, given it will take years for a sizeable pot to accumulate.