I am retired – what life insurance cover is right for me?
Arranging the right type of protection insurance can seem like a bit of a maze. If this is the first time you have considered it then hopefully you will find this a useful aid and it will point you in the right direction.
When considering arranging protection insurance it’s important to take into account your circumstances and what situations could leave you or your family in a vulnerable financial position.
Do I need a Whole of Life policy?
Many of our clients simply want to arrange a life insurance policy which will pay out enough to leave a small lump sum for their family and to cover their funeral and related costs.
If this is the case, they need to be considering a Whole of Life policy. This policy is guaranteed to pay out when the policyholder passes away, providing that the premiums are maintained until that time. There is no investment value so if the premiums are not maintained, the policy will lapse.
Whole-of-life policies are also used to help people to mitigate a potential inheritance tax liability.* For example if your estate’s net value was £600,000 and you are single, the tax liability would be £110,000 (£600,000 – £325,000 x 40% = £110,000). A simple Whole of Life policy with a sum assured of £110,000, written in Trust,** could cover the tax bill, and mean that the beneficiaries of your estate may not be liable for any inheritance tax.
The individual threshold can increase to £500,000 if you own your home (or have a share in it) and the home is left to your children or grandchildren.
**Trusts are not regulated by the Financial Conduct Authority.
*The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.
It is also possible to set up a joint Whole of Life, second death policy. This type of policy is suitable for people looking to mitigate some or all of their potential IHT liability. This means that two policyholders are covered (usually a husband and wife/civil partners) but the policy pays out when the second policyholder passes away.
Do I need a Life Insurance policy over a fixed term?
The alternative to a Whole of Life policy is a ‘term policy’. This type of policy has a fixed end date e.g. the policy will provide cover until the person reaches the age of 90. The downside of this type of policy, particularly if it’s there to cover funeral costs, is if the policyholder lives beyond the end date of the policy. The upside compared to a Whole of Life policy is it is usually much cheaper.
Term policies are suitable if someone needs cover for a specific period of time, e.g. until a loan or other debt has been repaid.
Mr X, a 65 year old gentleman requires a life insurance policy which will pay out a sum assured of £110,000 whenever he passes away, to ensure funds are available to cover the potential IHT liability. A Whole of Life policy, with a sum assured of £110,000 would cost £184.69 a month. The policy must be written in Trust to ensure that the proceeds do not form part of the estate.
Quotes correct as of July 2023
Please note that any premiums mentioned are indicative only and based on this specific case study/ example, which is shown for information purposes only. Premiums shown are an average of the 5 cheapest insurers. Your own circumstances will determine whether the amount payable is more or less than the figure quoted.
Mr X, a 65 year old gentleman and his 60 year old wife require a life insurance policy which will pay out a sum assured of £110,000. This is the amount that they have calculated as being the potential IHT liability, taking into account the transfer of tax allowance. A joint Whole of Life, second death policy with a sum assured of £110,000 would cost £147.74 a month. The policy must be written in Trust to ensure that the proceeds do not form part of the estate.
Quotes correct as of July 2023.
Please note that any premiums mentioned are indicative only and based on this specific case study/ example, which is shown for information purposes only. Premiums shown are an average of the 5 cheapest insurers. Your own circumstances will determine whether the amount payable is more or less than the figure quoted.
Mr X, a 65 year old gentleman requires a life insurance policy which will pay out a sum assured of £50,000 to his wife when he passes away. He’s looked into a Whole of Life policy, however the premium quoted was £104.25 which is outside his budget. A term policy offering him cover until his 90th birthday would cost £59.28 a month. Although there is no guarantee this policy will pay out (as he might outlive the policy) it is much more affordable.
Quotes correct as of July 2023.
Please note that any premiums mentioned are indicative only and based on this specific case study/ example, which is shown for information purposes only. Premiums shown are an average of the 5 cheapest insurers. Your own circumstances will determine whether the amount payable is more or less than the figure quoted.
