Guide to over 50s life insurance plans
- Also known as over-50s lifelong protection and works differently to regular life insurance
- An over-50s life plan is NOT a savings or investment product - you may pay out more in premiums than the lump sum will be worth after your death
- Watch out for the initial wait period, which is typically 12-24 months. If you die in this time your estate will only receive the premiums you've paid in
- If you miss payments or end the policy you lose everything you've paid in
- Before committing, calculate whether an over-50s lifelong policy may work for you and consider alternative options
If you've chosen to compare life insurance plans for the over-50s, note that it's a very different product to regular life insurance and one that needs special consideration.
The first thing to understand is that it's a sort of whole-of-life policy - meaning it's guaranteed to pay out when you die - rather than a term insurance policy, which offers protection for a specified period of time.
There's nothing to stop a person over the age of 50 taking out a regular life insurance policy and Gocompare.com's comparison service offers options for all ages from 18-80.
Gocompare.com's service for over-50s lifelong protection offers guaranteed acceptance without a medical for those aged 50-80, but it's crucial to realise that the product is not a savings or investment plan.
This means that, depending on how long you live, total premiums paid may be greater than the cash sum payable on death.
Arranging an over 50s lifelong protection policy
Gocompare.com's easy-to-use forms will ask how much you'd like to pay a month - this can be anything between £10 and £50. The more you pay, the higher the payout should be at your death.
Premiums are typically paid until the age of 90 (some insurers may have a shorter or longer payment period). If you live beyond that your policy your cover will still be active, you just won't have to pay any more premiums.
Our forms will ask for basic personal and contact details and whether you've smoked tobacco or used nicotine replacement products in the last 12 months.
You'll then see our comparison table showing the options that include the company name, cover amount (the lump sum payable on death), monthly premium, maximum payment term and the total premium payable if the policy goes full term.
You'll also see the 'initial period' - this is typically for 12 or 24 months after you take out the policy and means that, if you die in this period, the payout will only return the premiums you've already paid in, not the full cover amount.
When you see a product you like the look of, click the button for more detailed information and for the chance to go ahead with a purchase.
What's over-50s lifelong protection used for?
Everyone's motivations for taking out a policy will differ, but over-50s life insurance plans are typically chosen by people looking to guarantee they'll have a certain amount of money to pass on as an inheritance.
Many policyholders want to be sure they have enough money to pay for their funeral, meaning that their relatives won't be left out of pocket.
How do I know if an over-50s plan is right for me?
There's no way of sugar-coating the fact that the calculation of whether or not you'll benefit from taking out an over-50s policy will come down to a bet on how long you're going to live. As usual with a bet, though, you may find that the odds are not stacked in your favour.
The fact that there's no medical check may make these policies seem appealing to those with existing health issues, but it's important to remember the initial period - should the policyholder die within this period the insurer will only return the premiums that have been paid.
You need to remember that inflation will be eating into the value of the guaranteed payout
To make the main calculation you need to consider, check the monthly premiums you have to pay and the guaranteed payout, then divide the payout by the monthly premium.
For example, if the monthly premium is £10 and the guaranteed payout is £500, you'd divide 500 by 10, giving you a figure of 50, which you should think of in months. If you were to live longer than 50 months you'd then be guaranteed to be spending more in premiums than the payout could possibly be worth to your estate.
To add context to this somewhat morbid calculation, you may want to consider the mortality stats produced by the Office of National Statistics.†
Remember that these are the sort of figures insurers will have considered, using life tables to work out the deal they want to offer you. Read more in our article on how the life insurance industry works.
Other downsides of over-50s life policies
Even if you've made the calculation above and you feel that the odds are in your favour, remember that there are other factors that may weight the deal in favour of the insurer.
As noted, of course, if you pass away in the initial period you'll only get the premiums back. What's more, you need to remember that inflation will be eating into the value of the guaranteed payout.
The value of the premiums you pay in will not be growing whereas if, instead, you'd made payments into savings and investments you'd have had the chance to counter the effects of inflation, benefiting from interest and compound interest.
Remember also that if you decide you no longer want the over-50s policy you can't get back any of the money you've paid. What's more, if you miss even one premium payment - perhaps because your circumstances change and you can no longer afford them - the policy is likely to lapse and you risk losing everything you've paid to date.
Should I cancel an existing over-50s policy?
Again only you'll be able to decide if it's worthwhile continuing paying the premiums for an existing policy, but you should consider the factors mentioned above.
If you cancel you'll get nothing back from all the payments you've already made, but if you plan to continue paying you need to go back to the morbid months-to-live calculation described above.
If you've seen a more attractive over-50s policy than the one you're currently paying into, before switching remember to factor in the initial period when you won't receive the guaranteed payout.
Alternatives to over-50s protection plans
Of course, such policies may become less viable as you get older or if you have health issues.
There are also dedicated funeral plans to consider, which share some of the advantages and disadvantages of over-50s life insurance plans.
Alternatively, you may want to set aside the money you would have paid in premiums for such a policy and instead pay it into savings and investments.
Depending on the option you choose, you can get interest paid on your capital and more flexible access to your money. You also won't lose your money if you stop making payments. Your inheritance won't include a guaranteed payout, but the savings you've built up in the meantime may exceed the payout figure.
For further discussion, read our article on life insurance options for older people, and if you want to discuss the options with a fee-free, impartial adviser, you can call our partners LifeSearch on 0800 072 1145.¥
By Sean Davies