The purpose of life cover is to offer financial security to your family through one large payout from the insurer. So if you pass away or have a terminal illness, you have the peace of mind that your family will be taken care of.
For instance, you may not have the same expenses as during your 30’s and 40’s as you are less likely to have outstanding mortgage payments and you may no longer need to pay for your children’s education and living expenses because they are older and self-sufficient.
So with life insurance for over 50s, you can provide your loved ones with a bit of monetary support and this is commonly put towards your funeral. Given that the average funeral in the UK costs around £3,700, this is certainly something that your family would appreciate and the insurer can also pay the funeral company directly to save hassle.
The payout from your policy can also be used as a type of inheritance, paying your dependants all the monthly premiums you have been paying in over the years. However, you must remember that life policies do not offer any ‘cash in value’ so if the policy expires or you stop paying premiums, you cannot receive a cash refund.
The payments are typically fixed so you know exactly how much you will be repaying during the term of which you can choose for 5, 10, 20, 30 years or a lifetime.
You can also opt for an ‘increasing’ plan which adjusts your monthly premiums according to inflation. Since you may be alive for another 30 years or more, you want to make sure that the payout is adjusted to inflation otherwise it may not be worth much when your family receives it.
Most insurers will not offer a full payout for around one or two years so you may be required to make a minimum payout for this period. If you do pass away in the first year or two, you will only receive the amount you have paid in so far.
Some insurance companies will not charge premiums once you are over 90. If you have already paid your premium for a number of years, you will receive premiums until you die and your payout is made.
Although it is convenient to set up your policy for the rest of your lifetime, it is important to check the premiums charged and how much you are actually spending. It might get to a point that you actually pay more in insurance than the actual payout you can receive, so finding this balance is key.
As the life insurance payout can be considered inheritance, it could be eligible for a 40% inheritance tax. So by writing your policy ‘in trust,’ you can avoid this tax and it is worth speaking to your insurer to arrange this.
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