Affordable financial protection in your senior years
These are very challenging times in the UK and life has rarely seemed quite so fragile. Especially for those aged 60 years and over. For many, this naturally raises the question, what would happen to our loved ones if we were no longer around? Could your loved ones afford to cover rising funeral costs, (average cost £4,417 according to insurer SunLife).
If you are leaving behind people who depend on you financially, could they afford to meet future living costs? Whilst these are difficult subjects to discuss with family members, they are obviously very important.
Over 50s plans
When it comes to the senior market, the most common and obvious choice for many is an over 50s plan.
Because they guarantee acceptance if you are a UK resident aged 50 – 80, without the need for any medical questions.
This is a good policy option if you are currently in poor health or have previously experienced medical problems.
However, it’s not always the most suitable policy option.
For starters, it will only pay out a maximum of £25,000.
When you consider the average total cost of dying alone is £9,493 (SunLife), it is easy to see that this will not be sufficient, especially if you wish to provide an inheritance or meet future living costs for your spouse.
Did you also know that, over 50 plans enforce a 12 or 24 month waiting period? This is a period of time at the beginning of the policy when you cannot make a claim.
Lastly, whilst over 50s plans are very accessible because no medical questions are asked, insurers mitigate their risk by charging higher premiums.
If you only require protection to cover spiralling funeral costs then a prepaid funeral plan could be a good option.
The main benefit is that you are able to lock in your funeral cost at todays rate.
When you consider funeral costs in the UK have risen 130% in the last 16 years this could be a significant financial benefit for loved ones.
What’s more, a prepaid plan enables you to get the send-off YOU want, whilst alleviating your loved ones from carrying out the arrangements at an already challenging time.
The drawback is, it will not cover anything other than your funeral.
Whole of life
The less well-known whole of life option could be a great option, especially if you are in later life but in good health.
Unlike over 50 plans, there is no waiting period before you can make a successful claim.
Also, with whole of life policies you can secure up to £1,000,000 of cover, (in contrast to the £25,000 ceiling limit for over 50s plans).
However, this option is not for everyone.
In order to secure a greater cover amount, insurers will ask questions regarding your health during the application. You may even need to undertake a medical exam.
As with term-based life insurance, the great the risk you pose, the higher your monthly premiums.
But this could be seen as an opportunity to reassure your insurer of your good health; resulting in a larger cover amount and lower premiums.
Both over 50 plans and whole of life policies are forms of life assurance. This is because a pay-out is assured when you pass away, not if you pass away (as with life insurance). Obviously, you need to continuing paying your premiums.
Let’s look at a summary of the policy option for senior citizens discussed in this article;
|Over 50 plans||Funeral plans||Whole of life|
|Guaranteed pay out||Yes||No||Yes|
|Protected against inflation||No||Yes||No|
|Protected by FCA||Yes||No||Yes|
|Terminal illness cover||Yes||No||Yes|
|Easy & fast application process||Yes||Yes||No|
|Protected by FPA||No||Yes||No|
Write your life insurance in trust, (avoid 40% inheritance tax and probate)
Whether you decide on an over 50s plan or whole of life insurance, it is a great idea to write your policy in trust.
By writing your life insurance in trust the proceeds avoid forming part of your estate. It is therefore except from inheritance tax, (which is 40% on anything over the £325,000 threshold).
Remember, this inheritance threshold includes the value of your property, any savings and assets – so you can see how this sizeable sum can easily be exceeded.
Another key benefit it that the probate process is also avoided. This can ensure a faster pay-out for your dependants.
Despite these significant financial benefits, according to insurer Aegon, only 6% of policyholders utilise this option, even though there is no cost involved.
In fact, some FCA registered brokers, such as Reassured, offer a free trust writing service and are able to guide you through the lengthy application.
So, whilst over 50 and funeral plans are more popular policy options it is important to consider the whole of life too.
Once you have established the best cover to meet your specific needs, it is vital to compare insurers.
This is because the cost of premiums can vary significantly, due to different underwriting methods.
You can do this by using a comparison website, a reputable broker or by souring quotes yourself online.