How to find the best life insurance for over 60s

Life insurance will pay out a cash lump sum to your family, should you die during the term of the policy. But is it possible to get good value life protection when heading towards retirement? Find out how to find the best life insurance for over 60s.

What is life insurance?

Life insurance is a simple form of protection that will pay your dependants a cash lump sum, if you die during the term of the policy. This money can be used to support your dependants for a number of years and/or to pay off a large debt such as your mortgage. 

Do I need life insurance?

By the time you’ve reached 60, life may be slowing down a bit. Your children may no longer be dependent on you and your mortgage could have been paid off. You may be thinking of retirement, or have already retired.

If this applies to you, you might not feel like you need life insurance. 

However, with many people choosing to have a family later in life, you may still have children in full time education, as well as a hefty mortgage with many years left on its term by the time you hit 60. 

Alternatively, you may be looking to cover funeral expenses, settle outstanding debts or leave an inheritance to your children or grandchildren.

In these cases, it could be worth considering life insurance, or a specific over 60 insurance policy.

Life insurance for over 70s

What’s more, while it can be harder to get accepted for life cover the older you get, there are still plenty of different life insurance for over 70s and over 80s products available. 

However, it is important to understand the differences between the various insurance products, in order to choose the right policy for your needs. 

Here are the most common options:

Level term life insurance policy – term based

Level term life insurance policies, such as level term life insurance, pay out a cash lump sum when you die. This can be used to pay off your mortgage and/or provide living expenses for your dependants. These policies will often also pay out if you are diagnosed with a terminal disease with less than 12 months to live, which can ease your family’s financial burden at a difficult time. 

You’ll need to specify the sum you are insured for as well as how long you want the policy to run (the term). This could tie in with the number of years left on your mortgage, for example, or until your children have finished full time education. This can typically be anything upwards from 10 years. You then pay a fixed monthly premium for the cover. When the policy term finishes, your cover ends and you make no more payments.

Level term life insurance policies are straightforward, they provide cover when you need it and can be good value. If you have dependants and a mortgage, a term-based form of life protection is likely to be the best option for you.

However, the older you are, the more expensive your premiums will be, and they can be driven up further by existing medical issues. Potential policyholders may have to undergo a medical examination before being accepted.

Decreasing term insurance – term based

Decreasing term life insurance, also known as mortgage life insurance will reduce the cash sum paid out upon your death, over the term of the policy. This is typically used to cover a debt that reduces over time, such as a repayment mortgage. 

In this case the monthly payments stay the same, while the payout decreases over time. As the monthly premiums are typically around 20 per cent lower than level term life insurance premiums, this is a cheaper option. 

However, as the sum paid out is earmarked to pay off a debt such a mortgage, this means your dependants won’t be left with a lump sum to help with other living expenses.

Whole of life insurance and Life assurance policies – cover until you die

If you would prefer life insurance that covers you until the end, a whole of life insurance policy could fit the bill. 

Like term-based types of life insurance, you pay monthly premiums for your cover, and the insurer will pay a cash lump sum to your dependants when you die. However, whole of life policies do not specify a term and thus protect you until you die.

Whole of life policies are guaranteed to pay out, making them more expensive for insurers to offer. As a result, you can expect pricier monthly premiums. Some types of whole of life policy invest your premiums. However, should the investment do badly you may be asked to increase your premiums or accept a smaller lump sum. 

You may also be asked to undergo a medical, before being accepted for cover.

However, many whole of life policies do not actually require you to pay your premiums until you die. Instead, you pay for a certain number of years, or until you reach a certain age (typically 90). After this point your cover continues, but you make no further payments. 

Over 60s life insurance – cover until you die

Now, you may have seen television adverts for over 50s or over 60s life insurance (you can also find life insurance for over 65s, and life insurance for over 70s advertised). 

This type of age specific life insurance is usually a type of whole of life insurance that will pay out a cash lump sum (death benefit) to your beneficiaries when you die.

However, unlike whole of life policies, over 50s and over 60s life insurance products usually do not require a medical. What’s more, if you are aged between 50 and 85 you are often guaranteed to be accepted.

Why so easy, you may be wondering?

Well, for a start, the lump sum payment is typically far smaller than from the other types of life insurance. You will also need to pay into the plan for a qualifying period (typically 1 or 2 years) during which time the death benefit will not be payable.

Once accepted you will be locked into the plan and most policies do not have a cut-off date after which premiums are no longer payable, so you will be paying your premiums until you die. And this is where things can get expensive.

Life expectancy and your life insurance policy

Thanks to improved working conditions, better medical care and healthier lifestyles, we are living longer than ever. 

Indeed, according to the Office for National Statistics (ONS) a man aged 65 in the UK can expect to live, on average, to 85.6 years. A woman of 65 can expect to live to 87.8. And of course, many people will live even longer.

If an average, healthy 60 year old woman were to take out an over 60s life insurance plan, she could be paying into this for 30-40 years, during which time she could easily have paid more in premiums than the death benefit is worth. 

However, while healthy individuals may get a raw deal, remember that this type of life policy does not require you to undergo a medical. If someone in poor health takes out an over 60s life insurance policy and dies within 4 years the plan will pay out significantly more to their loved ones.

How to find the best life insurance for over 60s

If you still decide you wish to take out life insurance, and know which cover suits you best, it’s time to start searching for the best policy. Insurance companies, comparison sites and even supermarkets now sell life insurance policies.

Insurance brokers

Of course, applying for life insurance is simple if you have no health issues. But what should you do if your situation is a little more complicated?

In this case it may be worth using a specialist insurance broker. Not only will they understand your personal situation, they will be able to recommend the best products and insurers to suit your needs.

Alternatively, it can be worth paying for advice from an independent financial adviser. Not only are they able to assess all of your existing insurance policies to see what exactly is needed, they can help you to organise all of your finances.

Be honest about your medical history

Age, medical conditions and smoking are some of the key factors used by insurers to calculate life insurance premiums.

While we can’t alter our medical history, some simple changes can help us improve our health. Drinking less, giving up smoking and improving fitness before applying could drive down your premiums and save you money, particularly if you do need to undergo a medical.

Remember to disclose anything that might be relevant when taking out the policy. Insurers will refuse to pay out for any pre-existing issues they weren’t informed about.

Buying a life insurance policy

When you’re ready to sign up for a policy, make sure you read the small print carefully. It’s essential to know what is and isn’t covered and to get anything you are unclear about explained by the provider, or your broker/adviser.

Remember, you have the right to change your mind within 30 days, during which time the provider must offer you a full refund.

Inheritance tax (IHT)

Sadly, it is all too easy for your beneficiaries to lose a large portion of your life insurance to Inheritance tax . Fortunately, with a little planning you should be able to limit, or even avoid paying this tax altogether.

Some insurers will allow you to put your life insurance in trust. Allowing your beneficiaries to avoid the Inheritance Tax payment. 

A Trust offers a legal arrangement, allowing you to give your policy to a group of trustees, who are in charge of looking after it. The trustees can then pass it on to who you have chosen as your beneficiaries.

What happens if the life insurance provider collapses?

Finally, with the COVID-19 pandemic causing many companies to struggle or even collapse, you may be concerned about taking out such a long insurance policy. What if the insurer collapses in the next 20 years?

Thankfully, protection is available. The Financial Services Compensation Scheme (FSCS) that protects UK bank accounts covers life insurance policies, too. 

Check the Financial Services Register to ensure your insurer is listed.

24th August 2020