An alternative option to term assurance is a whole of life plan – a life assurance contract designed to give the customer a specified amount of cover for the whole of their life, which pays out a lump sum on death. When the customer dies, this money can be used to help pay the estate’s Inheritance Tax. If there is no IHT, the customer’s beneficiaries could spend or save the money as they choose.
Both term assurance and whole of life plans involve medical underwriting, but for over-50s, who are statistically more likely than younger people to have health issues, this can translate into higher premiums. That is where specific over-50s plans come into their own. These plans pay out a cash sum if the customer dies after one year of taking out the plan. Premiums are fixed (they can be as low as £8 a month) and there is no lifestyle or medical underwriting. However, advisers do need to make customers aware that over-50s plans may result in the total premiums paid being greater than the cash sum payable on death, depending on how long the customer lives.
There are certainly some options available in the protection market for those of working age who are 50-plus. But the challenge, as ever, is raising awareness of the need for protection. There are many more ostriches among us than eager beavers when it comes to getting our protection insurance in order (understandably, given few of us spend any more time contemplating death and critical illness than we have to). The problem is, this reluctance to address the issue means that many UK families are underinsured in protection terms, and therefore at risk of financial hardship if a death or critical illness strikes.
So what can be done to address this problem? I believe the answer may lie in the success of the UK’s pension auto-enrolment programme, which aims to ensure all workers – older and younger – have a private pension pot to draw on when they retire. The key to the success of pension AE is turning an issue that most average workers find incredibly boring and irrelevant into something positive that they do not even have to think about. The employee pays in, their employer contributes, and the load is shared. As a result, those who have begun saving at an early stage in their career can now look forward to a more enjoyable retirement.
