Gone are the days when most parents found themselves in their fifties and faced with an empty nest.
Thanks to the fact that many of us are having children later in life and our kids are staying at home for longer as the cost of property rises, we are increasingly heading into our sixties while still feeding a family and paying off a mortgage.
Figures from investment service Hargreaves Lansdown show that one in six homeowners will either be over 65 by the time they clear their home loan, or will never pay it off at all.
This means that should you die, your family could be at risk of losing the roof over their heads at a time when they are in the depths of grief.
Although no one likes to think about dying, for many families, losing a loved one is unfortunately a grim reality. Figures from the Childhood Bereavement Network estimates that every 22 minutes in the UK, a parent dies leaving dependent children. By the age of 16, one in twenty young people will have lost at least one parent, so having adequate life cover is crucial, even as you age.
How does life insurance work?
Life insurance is designed to pay out a lump sum if you die which will provide a financial cushion for your partner and dependents. In return for this protection, you must pay the insurer monthly premiums. As a general rule, the younger you are when you take out life insurance, the cheaper your premiums will be, as there’s less chance of a claim during the policy term.
There are a few options when it comes to life insurance. You can opt for a set term, for instance, which is referred to as “term assurance”, or your cover can continue for as long as you live, known as “whole of life insurance”.
Alternatively, there’s decreasing term cover, which sees the amount paid out in the event of a claim gradually reduce over the policy term. So, should you simply want to protect your family from debt repayments, perhaps a mortgage, the amount of cover will fall in line with the amount owed on the loan.
Family income benefit is another type of life cover. This pays your dependents a tax-free monthly income rather than a lump sum in the event of your death. This income is paid until the policy term finishes.
You can learn more about the various types of life insurance policy in our article Different types of life insurance explained.
Am I too old to get life insurance?
You can buy life insurance at almost any age, although premiums become more expensive the older you are. You won’t necessarily be priced out of the market if you are in your fifties or older though, as premiums are based on other factors as well as age, such as your health and whether you’re a smoker or not, as well as how much cover you want and the length of the policy.
How much cover is enough?
The amount of life insurance you’ll need depends on your circumstances and what you want to achieve.
A good starting point is to think about how much cash you’d need to clear any debts that you might leave behind when you die. You should also work out how much money your dependents might need to feel financially secure if you’re no longer around to provide an income.
Some experts suggest that you opt for a mix of cover, for example a policy which will pay out a lump sum to cover your mortgage and other debts, as well as some family income benefit to provide a regular income.
If you do not have any children, and your partner is able to support themselves financially, it may be that you only need enough cover to pay off your debts. For this purpose, the cheapest and easiest answer is either a level-term insurance – where the payout remains constant throughout the period of the cover, for instance, with an interest-only mortgage – or a decreasing-term insurance where the payout will decrease in line with the total left owing on a repayment mortgage.
How you can bring down costs
One way couples can increase their levels of protection when it comes to life insurance is to buy two separate policies which, according to Lifesearch, would typically only cost about 10% more than a joint policy.
Having separate cover means that if anything happened to either person – or both – each policy would pay out, providing double the payout for a similar premium.
With joint life cover, the policy only pays out once when the first person named on the policy dies, the other will be left uninsured.
This often happens at an age where the other person is older and may not be in as good health, making the cost of replacing that cover either expensive or impossible.
Never assume that your bank or broker will offer you the best deal as many are usually tied to just one provider and can be expensive.
Like any insurance, always shop around before you purchase a policy. If you have any pre-existing medical conditions it can be helpful to use a fee free specialist life insurance broker to help you navigate the various acceptance criteria and find the right insurance cover for you.
Be completely honest in your answers to any questions on an application, for example your medical history, otherwise the policy could be invalidated. You might feel that you are having to give far too much information, but if you hold something back it could really affect whether the insurer pays out in the event of a claim.
Even though there’s usually no income or capital gains tax (CGT) to pay on life insurance payouts, if the value of your estate is more than £325,000, the threshold at which inheritance tax becomes payable, your dependents risk losing 40% of the amount that is paid out.
To avoid this you should talk to your insurance company about writing your policy “in trust”. This will mean it doesn’t form part of your estate, and your beneficiaries will usually receive the money much more quickly. Trusts and inheritance tax planning can be complicated, so it’s a good idea to seek professional financial advice if you’re not sure how best to arrange your finances. You can learn more about how inheritance tax works in our guide Understanding Inheritance Tax.
Remember…
It’s impossible to know what the future holds, but having life insurance in place can provide valuable peace of mind that your loved ones won’t have to worry about money at what will already be an upsetting time.
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