Post fifty, many people find that they want to restructure their financial arrangements. Most of us, initially, take out life insurance in order to cover mortgage payments, but the chances are that by the age of fifty you may be mortgage free and the life insurance expired. Taking out new life insurance needs careful consideration and the starting point needs to be, how much money do you want paid out at your death and what do you want done with the money? Is it your intention just to cover your funeral expenses or do you wish to provide your partner or children with a lump sum? How much money can you comfortably afford to pay each month, bearing in mind that once you take out a policy you are committed to the monthly payments either for the duration of the policy, or the rest of your life. If you discontinue payments, everything that you have paid in up to that point will be lost. Work out what age you will be when your contributions start to exceed the value of your pay-out and consider the probability of living beyond that age. Taking out life insurance is necessarily something of a financial gamble. With any insurance policy there will be an optimum age at which it would be most financially advantageous to pass away, but this is a financial arrangement where most of us would not want to achieve the optimum pay-out.
Level Term Policy
With a term policy you can purchase life insurance for a specific period, usually between one and thirty years. During that period the insurance will pay out a set sum according to the value of the policy you’ve taken out.
Decreasing Term Policy
If you are taking out insurance to cover financial commitments which will reduce over time, a decreasing term policy allows you to reduce your payments during the period of cover, the value of the pay-out will reduce accordingly.
Whole Life Insurance
This policy will pay out a fixed sum at whatever age you die, but as mentioned before, you need to be aware of the age at which the value of your contributions will exceed the value of your pay-out. Another important consideration is that you will need to make the monthly payments for the rest of your life. Are you confident that in twenty years’ time, you will still be able to afford the payments. If you miss a payment it is likely that you will invalidate the entire policy and that your contributions up to that point will count for nothing. Clearly, setting up a direct debit is a crucial safeguard. Most of these policies do not require a medical, so if your health is poor, these policies are potentially a much more financially advantageous commitment. If you want to get a better idea of whether you are likely to pay in more than the value of the pay-out, visit the ‘Office for National Statistics’ site to get an idea of average life expectancy. Finally, don’t forget about inflation. The buying power of the money that you pay in now will be much reduced in twenty years’ time. It is possible to buy inflation linked policies but of course they require increasing contributions. Compare the wide range of policies on offer here.