When we reach our senior years, many people become aware of the need for life insurance cover to protect their loved ones from significant expenses, such as rising funeral costs.
A life insurance pay out can also clear any outstanding debt, help cover the future living costs of your partner and/or leave an inheritance.
What many seniors may not be aware of, however, is that there is more than one policy option available to them.
When considering life insurance in later life, most turn to an over 50s plan, for example SunLife’s Guaranteed Over 50s Plan or British Seniors Over 50 Life Insurance.
However, this policy has a closely related sister product which most people are simply not unaware even exists, whole of life insurance.
For a sizeable proportion of over 50s/over 60s the whole of life option could be a much more suitable and cost-effective choice.
What is the difference between life assurance vs life insurance?
Both over 50 plans and whole of life cover you for the rest of your life, and therefore guarantee a pay out when you pass away.
These are both forms of life assurance, as a pay out is assured when you die. As opposed to life insurance which only covers you for a predetermined period of time (the term) and pays out if you die.
As a result, life insurance is generally much more affordable as it presents less risk to the insurer of having to pay out.
Now let’s look into the specifics of over 50 plans and whole of life policies…
One of the key differences between whole of life insurance and an over 50s plan is the information required during the application process.
Only requiring your age and the cover amount (occasionally smoking status but not always), an over 50s plan offers a fast and simple application process. All UK residents aged 50-80 will be guaranteed acceptance.
In contrast, whole of life insurance requires you to disclose your medical history, family medical history and smoking status.
As a result, the whole of life application is a longer and more complicated.
It may also mean that an immediate decision is not reached, requiring you to provide additional evidence or undergo a medical exam before cover can commence.
On occasions your whole of life application may be declined altogether is you are considered too high a risk by the insurer. If this is the case, then you can always consider an over 50s plan as a contingency.
Cost of premiums
Generally speaking, whole of life cover monthly premiums are cheaper than that of over 50 plans.
This is because, due to the lack of medical information required for an over 50s plan, the level of risk to the insurer is simply unknown. To mitigate this uncertainty, insurers often charge higher monthly premiums.
With whole of life, the level of risk you pose is known and the cost of your premiums is calculated accordingly.
Whole of life insurance may not be a cost-effective option for those who would have the cost of their premiums inflated due to ill-health, older age or their smoking status.
Therefore, the cheapest option for you would depend on whether or not you would benefit from your medical information being known or not.
Premium age limit
Both whole of life insurance and over 50s plans provide cover protection for the rest of your life.
However, whilst whole of life tends to require you to pay premiums until you pass away, over 50s plans often have an upper age limit.
This means that when you reach a certain age (usually 90 years old or the 30thanniversary of your policy), you are no longer required to make payments.
Your cover will still remain valid until your pass away.
As a result, you should consider how long you expect to live and whether or not this could affect how cost effective each option is over the life time of the policy.
Pay out amount (or sum assured)
Due to the unknown risk associated with an over 50s plan, insurers are reluctant to offer a large amount of cover.
As a result, on average you can benefit from approximately 40% more cover with whole of life insurance compared to an over 50s plan.
While an over 50s plan will provide around £5,000 – £25,000 worth of cover, a whole of life policy could provide up to £1,000,000.
Therefore, what it is you are looking to cover and the amount required to do so, may be the determining factors as to which policy type best meets your needs.
For example, £10,000 worth of cover may be sufficient to provide an inheritance, but not to meet the future living costs for your spouse, as well as the cost of your funeral, (average cost nearly £5,000 in the UK).
As mentioned, more often than not, an over 50s plan does not require you to provide information regarding your smoking status.
As a factor which would usually significantly increase the cost of your premiums, especially as you age, taking out an over 50s plan as opposed to whole of life insurance if you are a smoker could be extremely beneficial.
Insurers class you as a smoker if you have used tobacco or any nicotine replacement products within the last 12 months.
Therefore, even if you have now quit smoking but only within this time period, an over 50s plan could still be the most cost-effective solution.
In some instances, smokers in older age will be declined whole of life cover because the level of risk they pose is too high.
Due to guaranteed acceptance between the ages 50-85, even if your smoking status is required, you will be able to secure an over 50s plan.
How has Covid-19 impacted life insurance?
The answer is, not that much at all until now (14/01/21). You can still secure a policy and insurers are still paying out on claims, even if the policyholder has been a victim of Coronavirus.
As discussed, over 50 plans do not ask any medical questions so that is not impacted by Covid, however it is very likely with a whole of life policy you will be asked specific questions about the virus, such as;
Have you tested positive for Covid-19?
Have you been in contact with anyone who has tested positive?
Do you have any symptoms?
Have you been advised to self-isolate?
As with any life insurance policy it is important to be open and honest at all times in order for your beneficiaries to benefit from your selfless investment.
For example, if you have had Covid but withheld the information during the application process this could invalid your policy, resulting in a declined claim. In insurance, this is known as non-disclosure.
Over 50s plan vs Whole of life: In summary
Choosing between an over 50s plan and a whole of life policy will be down to individual circumstances, including:
The level of cover required (or sum assured)
Whether you smoke
Generally speaking, though, those who are towards the younger end of the age bracket, who don’t smoke and are in good health are likely to find a whole of life policy more cost-effective.
Whereas those towards the upper end of the age bracket, who smoke and/or suffer from ill-health are more likely to benefit from arranging an over 50s policy.
As a result, it is always best to consider your options and compare multiple policies to ensure you get the right cover, at the best price.
Insurers undertake different underwriting processes and as a result premium costs as vary significantly.