The impact of the COVID-19 pandemic in the UK has been hardest felt within the over 60s demographic, with the majority of fatalities falling within this group.
That said, according to ONS data the over 60s population is growing faster than other age group as life expectancy increases overall. It is forecast that there will be an extra 7.5 million people aged 65 years+ in the UK within 50 years.
The devastating impact of COVID has resulted in a surge in life insurance applications amongst seniors, as people seek to protect their loved ones financial future.
Although significant financial responsibilities such as a mortgage may no longer be a concern post 60, seniors still have other considerations to provision for, such as;
- Funeral costs (average £4,184)
- Cost of dying (average £9,263)
- Providing an inheritance to children/grandchildren
- Meeting living costs for a surviving partner
- Clearing any debt
But what life insurance options are available, and which are best suited to meet your needs? And how has COVID-19 affected the process of securing cover?
Let’s look at the different policy options…
Over 50s plans
A guaranteed over 50s plan is probably the most obvious policy choice for those over 60.
Why? Because acceptance is guaranteed if you are based between 50 – 85, without any medical questions being asked during the application.
The application is also much faster and simpler compared with whole of life and term-based policies.
The main drawback with over 50s plans is the cover amount, (known as the sum assured). With over 50s plans the maximum cover amount is £25,000, but as you age this maximum sum decreases.
When you consider the total cost of dying is currently £9,263, it means there will not be much money left over. As a result, an over 50s plan is often taken out to cover funeral expenses, (although it can be used as your beneficiaries wish).
Please note, the proceeds from an over 50s plan are subject to inflation. So, if you take over an over 50s plan when you are 65 (£15,000 cover) and you pass away 14 years later, the real-term value of that payout is likely to have diminished.
Some insurers allow you to stop paying your premiums when you turn 90 (depending on when you took the plan out), while cover remains in place. Unlike all whole of life policies which you pay for until your passing.
As a result, if you only want to cover rising funeral costs, a prepaid funeral plans, where you can lock in the current rate, may be more suitable. More below.
One final consideration is the waiting period, (sometimes referred to as the qualifying period). This is a period of time at the beginning of the policy, either 1 or 2 years, where a successful claim cannot be made. Although, if you do pass away within the waiting period, the premiums you have paid in will be returned.
Whole of life insurance
Whole of life insurance is a lesser-known option which can be very beneficial to the right applicant.
Like, over 50 plans, whole of life cover guarantees a pay out, (assuming you keep up with your premium payments).
But there are two important differences. Whilst the maximum sum assured with over 50 plans is £25,000, with whole of life it can be much higher, (up to £1,000,000). However, in order to secure this higher coverage insurers mitigate their risk by asking medical questions during the application.
As a result, whole of life can be a good option if you wish to leave a greater sum for loved ones, however if you are in poor health this option is likely to be too expensive. Also, as premiums need to be paid for as long as you live (and no-one knows how long this will be) it is possible to pay more into the policy than it will pay out.
Like term-based policies, the COVID pandemic has changed the application process with additional questions. However, the likelihood of a pay out and the cost of premiums at the point of writing this article have not been impacted.
Term based life insurance (level & decreasing term)
Term life insurance is the most common form of cover amongst the under 50s.
It is traditionally taken out to cover a mortgage and if young it is usually a very cost-effective option. It comes in either level term or decreasing term options.
In both cases you are covered for a set period of time, (known as the term). However, a level term policy pays out a fixed sum if you pass away within the term, whereas with the more affordable decreasing term policy the cover amount reduces over time, making it ideal to cover a repayment mortgage.
As with all life insurance policies the monthly premium is calculated by the insurer, based on the level of risk you pose. The greater the risk/likelihood of a claim, the higher your premium.
Statistically, as we age, our health risks increase, meaning term cover may not be a cost-effective option as premiums can become high. What’s more, unlike over 50 plans and whole of life cover a payout is not guaranteed. If you are in your early 60s and in good health, then term cover may be suitable.
As a result of the pandemic, you will now be asked COVID related questions during the application, such as whether you have ever tested positive. However, to date, it has not impacted the cost of premiums or the likelihood of a payout.
Prepaid funeral plans
A prepaid funeral plan ensures the main costs of your funeral are covered. The price of your funeral is locked in at the point of purchase, and therefore unlike over 50 plans is not subject to inflation.
Acceptance is guaranteed and so funeral plans are not impacted by the effects of COVID, (although the ceremony may be affected depending on the current government restrictions).
If you only need to cover rising funeral costs, then this is a great option. It also allows you to arrange the funeral service you want and takes this emotional burden off of your loved ones.
In contrast, if you want to cover funeral costs but also have money left over to provide an inheritance, then an over 50s plan would probably be more suitable.
Whilst funeral prices have increased 128% in the last 16 years, there are more cost-effective options available such as direct cremations.
A direct cremation is simply a cremation without the funeral service beforehand and the average cost is £1,554, significantly lower than a traditional ceremony. Specialists such as Simplicity and Pure Cremation can offer these services, as well as the Co-op.
Summary
COVID-19 has highlighted the importance of putting financial provisions in place to protect our families from a worst-case scenario. Although our senior citizens have been hardest hit from this devastating pandemic, there are still multiple policy options available.
Each policy option is better suited to covering different aspects within your life, whilst your available budget and age at the point of application will also be determining factors in which option is best.
Whichever policy type you decide best meets your unique needs; it is always important to compare multiple quotes. Due to different underwriting criteria, especially at this time, premium prices can vary widely between different insurers.
You can use a reputable comparison website to compare quotes free of charge, however they will not compare the whole market and will not help you through the application.
Another option is to use an FCA-regulated broker, such as Reassured. Normally a broker will not charge a fee for their services, (as they earn a commission directly from the insurer for a sale).
The benefit of using a broker is the range of insurers they can compare; they can also help guide you through the application and write the policy in trust (to avoid 40% inheritance tax and probate).
The last 18 months have been extremely challenging for many of us, whilst many others have experienced painful lose.
Whilst loved ones can never be replaced, having the necessary financial protection in place can at least ensure there are no money worries if you are no longer around to provide.
Sources:
https://www.reassured.co.uk/funeral-plans/cost-of-dying/
https://www.cdc.gov/coronavirus/2019-ncov/need-extra-precautions/older-adults.html
https://www.ageuk.org.uk/discover/2020/06/coronavirus-risk-for-older-people-updated/
https://coronavirus.data.gov.uk/details/deaths
