Online banking

The difference between life insurance and over 50s cover

Taking out life insurance, whatever your age, is important if you have dependants who would struggle financially should the worst happen and you were no longer around. You’ll find there are other policies – such as over 50s – for you to consider which might be more suited to your needs.

How does life insurance work?

Life insurance is designed to provide your family with some financial help if you pass away during the term of your policy. Term life insurance usually pays out a lump sum if, during the policy term, you die. Many policies also pay out when you are diagnosed with a terminal illness.

Your family can use this lump sum for any purpose. Whether that's help towards paying household bills, childcare, or repaying the mortgage, this could provide peace of mind for you and them.

Life insurance plans come with many benefits:

  • Fixed premiums – even if there's a change in your health or lifestyle, you can be certain your monthly payments will remain the same.
  • A simple cancellation process – you can cancel the policy at any time (although you won't receive any money back).
  • Affordability – it could be more affordable than you think. Premiums can start from as little as £5 per month. The amount you will pay will depend on your circumstances and the cover you choose.

The policy is personal to you – tailor your plan to your needs. You can choose the amount and time period to suit your circumstances.

How do over 50s plans work?

With an over 50s plan, the policy runs for the rest of your life and is guaranteed to pay out a lump sum when you pass away. With most policies, the lump sum paid out is fixed and inflation will reduce the value over time. These plans should not be used as savings or investment products.

Over 50s plans come with many benefits:

  • A guaranteed cash lump sum – there’s no investment risk and the money can be put towards funeral expenses or final bills. You’re not guaranteed a pay out with term life insurance because you may not pass away within the term agreed.
  • Guaranteed acceptance – if you’re a specified age, often between 50 and 80, are a UK resident and haven’t exceeded the premium limit, most providers guarantee acceptance of your application.
  • No medical – you won’t have to attend a medical exam or answer any health-related questions.
  • Fixed premiums – you choose the monthly payment (or decide how much you’d like to leave behind) and those premiums are guaranteed to never rise.
  • Varied pay outs – different policies vary in terms of the amount they’ll pay out depending on the cause of death and how long the policy has been held. You should check the terms and conditions of each policy to confirm.

How over 50s plans can help with funeral costs

Cremation and funeral costs can be a worry later on in life. A typical funeral, using a funeral director, now costs around £3,600 according to The Money Advice Service in 2015 – a figure that’s likely to keep rising in coming years – and over 50s plans can provide families with cash they could put towards them. Some insurers will also include a funeral benefit option, where the pay-out goes directly to the funeral company, freeing loved ones of the financial stress at what is an already emotional time. These can often include an additional contribution towards the cost of the funeral.

Why you might want to write it in trust

It’s worth considering the option of writing your life policy in trust. One advantage to doing this is that your lump sum isn’t liable for inheritance tax. It also means that your trustees should receive the lump sum quickly, which allows them to pass this to your nominated beneficiaries in a shorter space of time. Whether or not a trust is appropriate is dependent on your circumstances, and you should seek professional advice if you have any doubts.

Whether you need a life insurance plan or an over 50s plan will depend on whether you’re looking to provide financial support for your dependants to meet living costs if you die during the term, or to leave a smaller amount to help towards funeral costs and final bills when you die. It’s all down to your personal circumstances.