If you have been at home during the day more than usual in recent months, you may have seen Over 50s Life Insurance advertised on TV. These commercials are friendly, reassuring, and often fronted by celebrities. The insurers advertised are usually household names.
So what is Over 50s Life Insurance, and is it a good deal?
What is an Over 50s Life Plan?
An Over 50s Life Plan is a type of life insurance policy that pays out a guaranteed lump sum on death.
You can usually apply for an Over 50s plan if you are aged between 50 and 85.
The plan will normally be set up on a whole of life basis, so will pay out on your death, regardless of age. This means that the premiums must also be maintained for life.
Most Over 50s plans provide a modest lump sum and are designed for people who may not have significant savings, investments, or protection. Many people set them up to pay for funeral costs, or to leave behind a small nest egg for their loved ones.
What Are the Benefits?
The main benefits of an Over 50s plan are:
- The application is usually very simple and quick.
- Over 50s plans don’t take into account health or lifestyle, so can offer affordable life cover for those with health issues, who may not be able to arrange insurance elsewhere.
- Over 50s plans generally have a high claims record, which means there is very little chance of a claim not being paid out.
- The insurers are usually well-known, financially secure companies, which can be reassuring.
- Many of the plans advertised on TV offer a free gift with purchase.
What are the risks?
An Over 50s plan works as advertised, so providing you read and understand the contract terms, it is unlikely that there will be any unpleasant surprises. However, there are few points to be aware of:
- Most Over 50s plans will only pay out the full cover amount after one year. If you die within a year of taking out the contract, your estate or beneficiaries will only receive the value of the premiums you have paid.
- It’s possible that the premiums paid will exceed the value of the payout. The insurer bases their premiums on a typical life expectancy, so if you live beyond this, you will pay out more than your beneficiaries receive back.
Are they good value?
Over 50s plans can offer reasonable value for anyone who is in poor health. Other insurance plans may not be available, or will impose heavy loadings on the premium, to the point that the plan is no longer affordable.
However, if you are in good health, there is a strong chance that you will live beyond the average life expectancy. Remember, the average takes into account people who die young and who have suffered with health problems for most of their life. If you have already reached age 50 with no major health issues, you can reasonably expect to live into your 90s or even beyond.
The insurance company is betting on most people being ‘average’ and the premiums are costed to ensure that they make a profit. So if you expect to live to the average life expectancy (or longer) there is a significant chance that you will pay more in premiums than the insurer pays out in return.
This suggests that if your health is good, you may wish to look at alternatives to an Over 50s plan.
What are the alternatives?
The right option will depend on your circumstances. Buying an insurance product advertised on TV isn’t always the best solution, as it designed to meet one niche requirement without taking your overall financial position into account.
It is worth seeking advice on the best way to leave money to your loved ones, as there may be solutions that you haven’t thought of, and that work better in your situation. For example:
- A fully underwritten whole of life plan may offer better value if you are in good health.
- A joint life plan could be more suitable if you are married or have a partner.
- A term assurance plan could be more appropriate if you only need life cover for a certain period, for example until your children are financially independent.
- It might also be a good idea to write any life assurance plans into trust, as this will ensure the benefits are paid out efficiently, and for those in the UK – without being included within your estate for Inheritance Tax purposes.
- A regular savings or investment plan could be the answer. This ensures that your full premium is working for your benefit, not the insurance company’s. Over many years, the lump sum built up could easily exceed any policy payout, especially when you factor in interest or investment growth.
Where does your financial adviser come in to all of this?
At Osborne Financial, life insurance is a key part of our financial planning, no good financial plan is made without the correct protection for your hard-earnt money and financial assets. It is important when thinking of taking out such plans, that you are not only taking out the correct type of cover for your personal circumstances but an appropriate amount of insurance.
We take a fully holistic and thorough approach with reference to life insurance, taking a look at your personal and financial circumstances and put together a plan of action. We take all of the complication away, putting high quality life insurance plans in place where required and read all of the fine print for you.
The information provided on the pages, blogs and articles contained within this website are solely for information purposes only and do not constitute financial advice. Professional advice should always be sought from a financial adviser.