If you have loved ones that depend on you, taking out life insurance can help to protect them in a number of different ways
Many people take out life insurance to pay off their mortgage should the worst happen. Once the mortgage is paid off and the life insurance has ended, it may seem like there’s no point in taking out a new policy.
But Louise Eaton-Terry, Head of Investment, Retirement and Later Life Products at Royal London, says otherwise: “Some people are still repaying their mortgage in their fifties, sixties and seventies, and even if you've paid off your home loan, or aren’t a homeowner, there are many good reasons for buying life cover later in your life.”
According to an Office for National Statistics report published in December 2017, more than 1.2 million people are now working beyond the age of 65, and their households may rely on the income they bring in. Many others receive a pension that won't continue in full, or even in part, after their death.
If you bring income into your household and have a partner, children or other relatives who are financially dependent on you, you may want to consider using life insurance to protect them against loss of your income if you die.
Inheritance tax planning
If your estate is likely to be worth more than the inheritance tax allowance (£325,000 in the 2020/21 tax year) you may be thinking about how to deal with any inheritance tax due on the value of your assets.
In certain circumstances you can give assets away during your lifetime without incurring tax, but this may leave you facing financial difficulty in your later years. If you’d prefer to keep control of your cash and other assets for the time being, you could set up a whole-of-life insurance policy designed to pay out on your death to cover some or all of the inheritance tax due on your estate.
Contributing to your funeral costs
As you get older, the impact on those you leave behind at the end of your life may start to worry you. Funerals are expensive, and many people don’t like the thought of their loved ones having to deal with the cost, especially when they're grieving.
“An over-50s life insurance policy is specially designed for those who want to provide money towards the costs their families will face when they die, or to leave a small legacy, without having to answer any medical questions,” says Louise.
There are many versions of this type of life insurance policy so, to ensure you get a good deal, it’s important to look for the following details:
- Flexibility: if you’re unable to pay the premiums, can you decrease the size of your monthly payments or take a payment holiday?
- Stopping payments: if you stop paying your monthly premiums before you die, will your family still get some money?
- How soon after you start a policy it'll pay out: most policies operate a ‘moratorium’ – a period of one or sometimes two years when your family won't receive a payout if you die.
Types of policy
The cheapest form of life insurance is called term insurance, which pays out if you die within a set period of time or ‘term’.
However, if you die after the term ends, your loved ones won't receive a payout. If you’re worried this might happen, it may be better to opt for a whole-of-life insurance policy. This policy is designed to run until your death, no matter how long you live. You can find out more about different life insurance options on the Money Advice Service website.
Whichever policy you choose, you may want to consider writing the policy ‘in trust’ when you take it out. This means the payout is paid direct to the person you want to receive the money, without it becoming part of your estate and therefore subject to inheritance tax.
Getting the information you need
Whoever you buy your policy from – whether it’s a provider if you’re buying direct, or an independent financial adviser – will be able to give you the necessary forms and talk you through the process when or after you take it out.
If you’re unsure about life insurance, and which type of cover you need, an impartial financial adviser can provide help based on your individual requirements.
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The pros and cons of flexible retirement
Flexible retirement may sound like great option for people wanting to take things easier in later life, but it’s important to weigh up the practicalities.