When we reach our senior years, most people are aware of the need for life insurance to protect their loved ones.
Whether it be to cover rising funeral costs, settle outstanding debts, help with day to day living expenses or leave an inheritance.
What many over 50s may not aware of, however, is that they have more than one policy option available to them.
When considering life insurance in later life, the majority of people will turn to an over 50s plan, like SunLife’s Guaranteed Over 50s Plan.
However, this policy has a closely related sister product which many people are unaware even exists; whole of life insurance.
For a sizeable proportion of this demographic, the whole of life option could be much more beneficial.
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 payout after you are gone.
These are both forms of life assurance, as a payout is assured at some point. As opposed to life insurance which only covers you for a set term.
It can be difficult to see the key differences between these two policy types, so let’s look at the detail.
The application process
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 cover amount (occasionally smoking status but not always), an over 50s plan has a very quick and simple application process, with all UK residents aged between 50-85 being guaranteed acceptance.
Whole of life insurance, on the other hand, requires you to fully disclose your medical history and smoking status.
As a result, the whole of life application is generally longer and more complicated to complete.
It may also mean that an immediate decision is not reached, requiring you to provide additional evidence or undergo a medical before the cover can be put in place.
On occasions your whole of life application may be declined altogether is you are considered too high a risk.
Generally speaking, whole of life cover is cheaper on a monthly basis than an over 50s plan.
This is because, due to the lack of medical information required for an over 50s plan, the level of risk you pose to the insurer is unknown.
To mitigate this uncertainty, insurers tend to charge a higher monthly premium.
With whole of life on the other hand, the level of risk you pose is known and the cost of your monthly premiums is calculated accordingly.
Whole of life may not be cost effective for those who would have the cost of their premiums inflated due to ill-health, older age or their smoking status.
Therefore, the most cost-effective solution for you would depend on whether or not you would benefit from your medical information being known or not.
Premium payment 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 30th anniversary 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.
Sum assured (or payout sum)
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 get approximately 40% more coverage with whole of life insurance than you can with an over 50s plan.
While an over 50s plan will provide around £10,000 – £25,000 worth of cover, a whole of life policy could provide £200,000 – £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 cover the future living costs for your partner and the cost of your funeral.
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.
The final round – Who wins?
Choosing between a whole of life insurance and an over 50s plan will be down to individual circumstances, including:
- Medical history
- Amount of cover required
- Smoking status.
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 vary significantly.
An FCA registered broker, such as Reassured, can search the market on your behalf, saving you time and money.
They can also answer any questions you have, helping unpick any insurance jargon you may not be familiar with.