Buying over 50 life insurance should be simple, yet somehow it can seem off-puttingly complicated. There’s no way around it, the buyer has to do due diligence, which means reading the fine print to avoid falling foul of conditions and exclusions. But if you’re prepared to do your homework you can find a policy that brings you and your loved one peace of mind.
Be aware that once you start paying into an over 50 life insurance policy, most of the time you won’t be able to get the contributions back if you decide, perhaps two years in, that it’s not for you1. So make sure it is the policy that best serves your needs before signing on the dotted line.
Do the maths
Some policies pay out a fixed sum, so if you die within two months of taking it out, the payout will be wonderful value compared to what you put into it which may come as some comfort to your nearest and dearest. However, if you are a sturdy soul and the policy says that you have to keep paying until you die, the plan could eventually cost more than it is worth. For example, if you are 55 and in good health, your life could reasonably expect to continue for another couple of decades. Say the policy lump sum payout on death is £640 and it costs £8 a month, then after 80 months, or nearly seven years, what you’ve put in will be same as what your loved ones will eventually receive. Live longer than seven years, and the policy will cost you more than anyone will ever get out of it. The moral of that story is, get out the calculator and keep shopping!
Worried about funeral expenses?
Some policies offer an option with an extra benefit to go towards taking care of funeral costs2. First, check to see if the option is available, and then look at whether it makes financial sense, that is, examine what it gives back versus what you put in. For some, the peace of mind that comes with knowing that the money will be there makes it worthwhile. Of course, your family will probably be relieved that you thought ahead, and in many ways, the policy is for them, rather than for you. Alternatively, you could just start a savings plan for your funeral.
Hanging in there
Everybody’s life is different, but it is possible to look at factors such as health and the life spans of other family members to get an idea as to your longevity. Then you will have at least some basis for thinking about how long you might expect to be contributing to a policy that requires payments until death. It probably sounds a little morbid to attempt to calculate how long you have left, but it will give some kind of framework for evaluating which policies comprise the better deals. Life expectancy is growing, which is great, but some of these policies are less rewarding for those who live to be 100.
It’s a gamble
At the risk of sounding rather morbid, if your health is poor then that improves the returns of a many an over 50 life insurance policy. If you only pay into it for a few years, then the return could be substantial.
Crime and punishment
With some providers, just missing one payment could render your policy null and void3, so you want to check the conditions of any over 50 life insurance agreement very carefully indeed. With some policies, the terms and conditions can be quite harsh. Some policy-holders have missed one payment just before death, due to illness, and the payout was lost.
The expected payout on the policy may appear to be generous when you agree to it, but inflation will eat away at that fixed sum. If inflation is particularly aggressive, the payout could effectively decrease over time. It’s possible to buy a policy that is linked to inflation4, but the premiums you are required to pay will almost invariably increase with the rate of inflation. It’s a personal thing, but some people prefer to know exactly where their plan is headed and choose to stay on top of adjustments such as inflation and take care of them as they occur.
Even more maths
People reading this who have already bought over 50 life insurance may be thinking the deal they have chosen is not that great. Don’t do anything rash – if you cease making payments now, you could lose everything you’ve put into the policy so far. Do your sums and work out how much more you think you will need to pay into it to make the payout happen, against what it will return. Read the fine print and, if necessary, consider adding an additional, better policy to make up the shortfall.
Peace of mind
In the end, the greatest benefit of taking out life insurance comes from knowing that a plan is in place. The important thing is to check thoroughly before making any commitment so that there are no surprises. For many over 50s, the simplicity of these policies is the most attractive thing about them and the merits of it as an investment are of less significance.
Knowing what you want and what will make you happiest is crucial when looking at life insurance for the over 50s. Just remember to consider all the conditions and to keep a sense of humour handy as you contemplate your own demise. It might help to have a pen, paper and a calculator too.