Protecting yourself with life insurance


For many people, life insurance is absolutely essential, especially when they've got a young family to think about. To others, it seems like a strange thing to think about, especially in later life. After all, you're getting older, so you might wonder if you even qualify. If you've ever wondered what type of life insurance there is for retirees, you're not alone. 

 

What is life insurance and why would it be useful to me when I retire?

Life insurance is a product where you pay regular amounts of money (premiums) to a provider, and if you die, that company will pay a sum of money to your estate (or to a named beneficiary).

That money can then be used to help pay off a mortgage, support the family, pay the bills in your absence – or even provide money for a charity after your death – so if there's someone depending on you for financial support then, yes, it's a good idea to consider life insurance.

Depending on the type of life insurance policy you buy, it can pay out a lump sum or provide a regular income. Before you begin, you should work out what you want life insurance cover for, how long you want it for, and if you can afford it (there's no point in starting to pay premiums if you know you can't afford to keep them up). Here are some ideas to consider:

  • Work out how much you want to leave to your beneficiary or beneficiaries – the more you want to leave, the higher your premium will be.
  • Don't accept the first quote – shop around. Some providers will ask you more detailed questions, take some time to answer them correctly.

And in retirement, specifically?

Depending on the type of policy you want, it may cost more to secure cover as you get older - the premiums are likely to be higher. However, that doesn't mean you should be put off as some policies are an excellent tool in terms of helping manage your inheritance tax liabilities – and some are specifically designed for older people.

So what types of life insurance are there?

Essentially there are two main types of life insurance – term assurance policies and whole of life policies. There are then derivatives of these life insurance policies for certain customers, such as over 50s policies and family benefit policies.

Term assurance

There are various different terms available with life insurance products.

  • Level-term policies – these pay out a lump sum when you die within the term of the policy. The amount paid remains level throughout the term – and the premiums usually stay the same, too. These policies are a good option if you want to help your family, or cover an interest-only mortgage in the event of your death.
  • Decreasing-term life insurance policies – as the name suggests, the amount covered will decrease over the term of the policy. These policies are better for debts that reduce over time, such as a repayment mortgages (they can also be used for inheritance tax planning).
  • Increasing-term life insurance policies – again, their name says it all: over time, the amount they pay out should increase so that the sum being paid keeps up with inflation.

Family income benefit policies

These policies are another type of decreasing term policy, but they’re designed to pay a regular income to your beneficiaries – after you die – until the policy's expiry date. The disadvantage with these policies is that if you take out a 25-year policy, but die one year before the policy ends, then your beneficiaries will only receive an income for the final year.

Whole-of-life policies

These are on-going policies, as the name suggests, which pay out when you die whenever that may be. These policies are usually more expensive because it's guaranteed that you'll die at some point, so they do have to pay out (as long as the premiums are paid). 

Over 50s life insurance

In general, anyone over the age of 50 is accepted for a policy like this, without having a medical. So it’s a way of assuring there’ll be a lump sum paid out to your estate, even if you’ve had medical problems in the past or are suffering from ill-health now. 

With that in mind, many people use them to cover funeral expenses, and see them as a form of funeral planning. In some cases, if you were to die within a certain period of time, your premiums may be refunded to your estate. Premiums are usually relatively inexpensive, but the cover offered is also usually relatively low.

How much does it cost?

Like all financial products, the cost of life insurance is based on a number of factors – most notably your age, occupation and health. This is because the insurance company has to assess the risk of your dying over the life of the policy, and the likelihood that they will have to pay the sum assured to your estate. In order to get an accurate quotation, it's worth talking to your relevant financial adviser, or looking at comparison websites to get an indicative quotation.