There's no exact age when you no longer need life insurance and for some it remains a need throughout their lives. A thorough examination of the financial impacts after your death define what you need and for how long. If you’ve had life insurance most of your life you may feel apprehensive about no longer having it - even when you no longer need it. Like other changes that we adopt when we transition into later life and perhaps even earlier than this, we need to review the situation objectively.
Of course, most term life insurance products are available right up until you’re 90 and a Whole of Life insurance policy can protect you right up until you die, whenever that happens. But does this mean that you should have life insurance for as long as you live?
In this article, we'll look at:
- Reasons to continue your life insurance
- What to consider if your life insurance will expire before you'd like it to
- What to do if the cost of continuing your life insurance has become unaffordable
- Is Whole of Life insurance good value?
- Discussing your life insurance needs with a specialist
Reasons to continue your life insurance
Our lives are unique to us so not all our lives will look the same when we reach a certain age. This is why it is far more useful to consider what financial responsibilities we have instead of what age we are, to determine what life insurance we need.
To pay inheritance tax
If the value of your estate will exceed the inheritance tax threshold (currently £325,000 per person) then your family may have to pay this tax before they can inherit it. Unless they have the means to pay this tax, they'd probably need to find the funds from the estate itself. Often people don't wish for their family to dip into the estate. Especially if it will mean selling property or other assets. There can be practical and sentimental reasons why this would be difficult. You can help avoid this situation by putting in place life insurance for the expected amount of inheritance tax due so that when you die, the money is paid to your beneficiaries through a trust without adding to your estate (i.e outside of your estate).
Equally, gifts that you make to people during your lifetime are potentially taxable if you die within seven years after making the gift. Putting life insurance in place to cover the tax, should you die before the gift becomes exempt, can be very wise.
Any tax planning can be quite complex and subject to changes in rules and regulations. Speaking to a specialist life insurance adviser* can help you to work out what you need to address and the best way to do this. Your beneficiaries may wish to help with the cost of any life insurance that will reduce a future tax bill too.
Support dependents
Consider those that depend on you financially. Do you provide for a partner, spouse, children? If so, you should think about how they will cope if you die.
Some people may be in receipt of a pension or other income that will continue to be payable to their dependents. If this is the case then ensure that you have a will and the correct power of attorney arrangements in place to give them access to the money if the need arises.
Others who earn their income will need to consider whether their family will be able to cope without this. Earned income may be accompanied by a death-in-service benefit that will payout to your dependents but it is important that you check it will be enough and your dependents are named beneficiaries. Consider things like whether a stay-at-home partner could return to work to earn an income too.
Clear debts
Life insurance provides money to pay off debts that remain unpaid in the event of your death. These debts may be made up of a mortgage that, once repaid, will give your family somewhere to live without the financial burden of a mortgage payment. But, you can also include any other monies that you would want to be repaid if you died before you were able to do so yourself.
Pay funeral expenses
Providing the means to pay for a burial, cremation and any other funeral expense is a very popular reason for arranging life insurance in later life. The increasing cost of funeral arrangements means that burials can cost up to £5,000 or more. Finding the money at short notice can be difficult and upsetting.
Specific funeral expenses policies allow people to pay a monthly premium to secure the cost of a funeral. Over 50s plans are popular in this respect but you should check to see what the qualifying period is. It's not uncommon for the plan to exclude a full payout if death happens in the first year. Read of our article 'Which is the best over 50s life insurance'.
Provide a nest egg
This may not be a necessity but nonetheless it is fairly common for people to continue or arrange new life insurance that will pay a sum of money to people they want to benefit after they die. There is no need for the money, instead it is a gift of sorts. Although, there is nothing to say you shouldn't arrange life insurance for this reason, you should ensure that you have addressed other financial needs first.
What to consider if your life insurance will expire before you'd like it to
If you have a term life insurance policy, it will protect you for a set number of years. The number of years that you initially took your policy over may have been sufficient. However, not enough people review their life insurance regularly. Changes to your mortgage, birth of children and other life events should prompt you to review your life insurance to ensure that it will meet the needs of the people you leave behind.
If you find yourself in this situation, it is helpful to speak to a life insurance specialist*. Do not cancel your policy because there may be an option to increase or extend it. An adviser will help you to evaluate the pros and cons of keeping your policy versus replacing it with a new one. If you have cancelled a policy then it can usually be reinstated by catching up any missing premiums if you've only missed a few.
Life insurance policies become more expensive as you get older and health conditions can affect your application for a new policy so don't assume that you can simply replace or reinstate your insurance.
What to do if the cost of continuing your life insurance has become unaffordable
Although most term life insurance policies are fixed in cost, there are other types of life insurance policies where the cost is reviewed from time to time. Some policies are designed to cost less at the beginning but become more expensive as you reach the later years of life. Your income may have changed making, what was previously affordable, a stretch. In any case, if you find yourself struggling to maintain your insurance costs then you need to review them.
Speaking with a specialist life insurance adviser will enable you to understand what can be done to make your life insurance policy affordable. If this is not possible, due to the type of policy you have, they can discuss alternative solutions that may be better suited to your budget. Whilst life insurance is important, struggling to pay for it may be counterproductive if it leaves you unable to meet other financial commitments. We have vetted the services specialist life insurance advisory firm* and the advisers are trained to deal with circumstances such as those described. There is no charge for the service and if you end up arranging a life insurance policy you'll receive up to £100 cashback as a Money to the Masses reader.
Take action as soon as you can if you are in this situation because age will keep making the cost of any new insurance more expensive. If your health changes for the worse, you may even struggle to arrange more life insurance and feel stuck with what you have.
Only cancel a policy once you have discussed it with an adviser to determine that this is the best option and even then, wait until a replacement is in place if required.
Is Whole of Life insurance good value?
Like any financial product, life insurance should offer value. Value doesn't mean that it should be cheap but it should offer you protection that you feel is worth the cost. For this reason, value is different for different people. Value also has little to do with affordability. Even if you could afford for example, £150 per month for a policy, you may not feel that the insurance is worth this.
The cost versus the payout can only really be established if we know when we're going to die. As this is unpredictable, it can be useful to look at the cost based on survival over 10, 20 or 30 years after starting the insurance.
The cost of Whole of Life insurance
Non-Smoker
| Non-smoker age at policy inception | Monthly Fixed Cost of £50,000 Whole of Life Insurance | Total Cost over 10 years | Total Cost over 20 years | Total Cost over 30 years |
| Aged 50 | £80.76 | £9,691.20 | £19,382.40 | £29,073.60 |
| Aged 60 | £110.05 | £13,206.00 | £26,412.00 | £39,618.00 |
| Aged 70 | £176.31 | £21,157.20 | £42,314.40 | £63,471.60 |
Smoker
| Smoker age at policy inception | Monthly Fixed Cost of £50,000 Whole of Life Insurance | Total Cost over 10 years | Total Cost over 20 years | Total Cost over 30 years |
| Aged 50 | £102.00 | £12,240.00 | £24,480.00 | £36,720.00 |
| Aged 60 | £149.23 | £17,907.60 | £35,815.20 | £53,722.80 |
| Aged 70 | £252.43 | £30,291.60 | £60,583.20 | £90,874.80 |
As you can see, in all but the very rare circumstances the policy pays out more than it costs. And if death happened very soon after starting the policy, the payout would be far in excess of what had been paid in.
The costs we've looked at are fixed so they won't increase over time. However, some policy costs can be set on a reviewable basis and could change. Usually, the reviews offer the policyholder a choice between an increased cost to maintain the level of insurance or a reduction in the level of insurance to maintain the cost. I have personally helped numerous individuals who find themselves between a rock and a hard place with these policies. So, my personal experience is that it is better to fix a cost that is affordable to you.
Check your life insurance needs with a specialist for free
Television, radio, newspapers and social media feeds can be full of life insurance adverts that target people of a certain age with the perk of a free voucher or gift. It can be confusing when the prices quoted aren't what you end up finding when you start looking for yourself. Even more importantly, they may not do what you expect them to and discovering this when it is too late can be devastating.
At Money to the Masses, we have vetted the services of a life insurance specialist. The advisers at this company are trained to provide bespoke advice that is tailored around your personal health, budget and desired output. The advisers work with the whole market which means that they're not tied to any insurance companies and instead they can access whichever provider and product is best for you. To arrange a callback from an adviser, complete this form*.
There is no charge for the service and if you end up arranging your life insurance with LifeSearch, you'll receive up to £100 cashback as a Money to the Masses reader.
If a link has an * beside it this means that it is an affiliated link. If you go via the link, Money to the Masses may receive a small fee which helps keep Money to the Masses free to use. The following link can be used if you do not wish to help Money to the Masses and do not wish to qualify for the cashback referred to in the article - LifeSearch
