When in your 60s or older often the mortgage is paid off and the children have left home and financially independent. Therefore, traditional term-based life insurance, designed to protect the family home and the dependants within it, is no longer required.
Instead, the primary financial consideration is often protecting loved ones from rising funeral costs.
According to research by SunLife, the average cost of a basic funeral in the UK is now £4,141, whilst the total cost of dying, with all the associated costs, is a significant £9,658 (up 5% from 2022).
It is important to note, that the cost of a funeral is heavily influenced by the region in which the service takes place. For example, in London the average cost is £5,171, whilst in Northern Ireland it is only £3,256.
As a result of the above, it makes sense to avoid passing this sizeable expense onto our loved ones when the inevitable happens (hopefully no time soon).
But what is the best way to protect your loved ones in 2024?
Prepaid funeral plan or over 50 life insurance?
There are two main options available: prepaid funeral plan and an over 50s plan.
The benefit of a funeral plan is that it allows you to arrange and pay for your chosen funeral in advance, locking in today rate and avoiding future inflation.
The funds from your funeral plan are paid out direct to your chosen funeral director to carry out your final wishes.
An over 50s plan, sometimes referred to as a guaranteed over 50s plan or over 50 life insurance, is a life insurance policy specifically for those aged 50 – 85 and it guarantees UK residents acceptance. The maximum pay out amount is £20,000 (although this depends on your insurer and age).
Whilst an over 50s plan is commonly taken out to cover funeral expenses, the proceeds can be used as the beneficiaries wish; for example, an inheritance, clear any debt etc.
An over 50s plan is a good option, especially if you have a pre-existing medical condition or are in poor health, although it is important to be aware of the waiting period imposed (see more below).
Leading life insurance broker Reassured have created an in-depth life insurance vs funeral plan review if you require additional information on the varies pros and cons.
Free welcome gift offers
The majority of over 50s plan providers now offer a welcome incentive to encourage you to take out cover direct with them. The gift usually takes the form of a £75 – £125 e-Gift card from well-known retailers such as Amazon or M&S.
If the quotes sourced are all similar in price, then it makes sense to consider a policy offering the best gift offer. However, the primary consideration should be the monthly premium cost, as even a small saving will likely dwarf the value of the free gift over the lifetime of the policy.
Funeral plan providers also offer a free welcome gift; however, it is less common and normally of less value.
Write life insurance in trust (avoid 40% inheritance tax)
As a result of writing a life insurance policy in trust, it is possible to minimise or even avoid 40% inheritance tax in the UK as well as speed up the pay out process. Despite this it is estimated that only 6% of policyholders utilise this free option.
Writing your life insurance policy in trust detaches it from your legal estate, meaning the proceeds are not subject to inheritance tax – currently 40% on anything which exceeds the £325,000 UK threshold.
The rights to the policy are assigned over to a trustee/s to administer on your behalf, much like the executor of a Will. Therefore, it is vital you choose a reliable trustee/s, such as a legal professional, family member or long-term friend.
As a pay out does not form part of the policyholder’s estate, the beneficiaries will not need to wait for probate to be granted (usually 9 months but can be longer) before the funds can be released, meaning a faster pay out.
The waiting period
Whilst applicants do not need to provide any medical information during the application process, insurers do impose a waiting period (sometimes referred to as a qualifying period).
This is a period of 12 to 24 months at the start of the policy where the policyholder cannot make a claim. This protects the insurer from people in poor health taking out a policy purely to make a claim in the short term.
Although a successful claim cannot be made during the waiting period, any premiums paid will be returned to the policyholders’ dependants.
As a result, if you only require your plan to cover funeral costs, then a prepaid funeral plan may be more suitable as a waiting period is not imposed and you can avoid price hikes.
We hope this article has provided you with helpful information regarding some of the key considerations for UK seniors.
