Royal London

It’s too late, mate!

Simoney Kyriakou

Content plus editor, FTAdviser

Baby boomers might be labouring under a mistaken belief that insurance companies just aren’t interested in them. But they are wrong.

People aged 50 and above are often targeted by TV commercials espousing funeral plans.

It’s all a bit outdated really, given improving health, better longevity statistics, the likelihood of people working for longer past normal retirement age, and the fact many people are fit, healthy and active well into their 70s.

While it’s good to plan for the end of life, what sort of protection can people take out in their prime of life?

After all, someone in their late 50s could still be the main breadwinner in a family, especially as many people are having children much later on in life and so someone who is in their 60s could feasibly still be paying school or university fees for their children.

Peter Hamilton, Zurich’s head of market management, says this is an ever-increasing situation. “People are living longer and working longer.

“Retirement is no longer the binary ‘in work one day, in retirement the next’ that it used to be. Many people either need to, or choose to, work on in later life.

“All this means the need for some kind of financial protection will extend beyond the old notion of a ‘normal retirement date’.”

Robert Harvey, protection specialist for Drewberry, also points out that many people may have mortgages that are extending longer into later life, and would need some form of protection to cover mortgage payments – especially with the changes the government are making to mortgage interest support.

Expense

It is often cited as a rule-of-thumb that once someone is in their late 50s and early 60s, protection becomes so much more expensive; the emphasis here being on getting your income protection cover when you are 20 rather than 60.

So are people aged 50 to 70 interested in protection? It seems to be the case.

Mr Harvey comments: “We speak with quite a few clients over 50 years old and certainly the costs are higher, particularly for income protection and critical illness cover.”

Effecting a sizeable insurance when younger and in good health may pay dividends at an older age.
--- Alan Lakey, CI Expert

Jennifer Gilchrist, senior product development manager for Royal London, says: “You should have protection throughout your life.

“Even though it can be more expensive for someone who is 50 years old or above, there are different options available that can meet different budgets, so it is worth finding out how to structure insurance in an affordable way.”

For example, if someone goes for a shorter term option, rather than long-term income protection (IP), this could work out slightly cheaper.

Alternatively, someone could defer the point at which the IP cover might kick in, so if the individual could get a deferred period of 26 weeks or so, depending on how generous their employer’s sick pay scheme is, this could also make income protection cheaper.

A similar flexible structure could be created with life assurance or critical illness cover (CIC); someone could forego a lump sum and take out a family income benefit (FIB) plan instead, which provides an annual benefit and is slightly cheaper.

The tables, below, from Royal London, show the sort of premiums for income protection, life cover and CIC for someone aged 55 wanting either 15 or 10-year terms, and someone aged 60, again for either 15 or 10-year terms.

Table showing the premiums for people aged 55 wanting 10-year terms Table showing the premiums for people aged 55 wanting 15-year terms Table showing the premiums for people aged 60 wanting 10-year terms Table showing the premiums for people aged 60 wanting 15-year terms

Note: The quotes team have assumed no TPD or child CI and guaranteed premiums for the CI cover. They have also priced all as non-smoker individual covers so all include policy fees and waiver for IP covers.

Critical illness

For Alan Lakey, founder of CI Expert, obtaining CI (critical illness) cover should not be ruled out, although of course this would be cheaper for someone in excellent health in their 20s or 30s.

He says: “CI plans can be taken out up to, and including, age 75, although the cost will naturally be far steeper for older applicants.”

For example, AIG requires £630pm for a 75-year-old requiring £50,000 of life or CI cover for a 10-year period.

But for a 55-year-old, the same plan costs £79.88, and £17.41 for a 35-year-old. “Effecting a sizeable insurance when younger and in good health may pay dividends at an older age, when insurance could be unaffordable,” he adds.

Moreover, Mr Lakey points out that life plans are very important for people in their later life, especially when it comes to inheritance tax (IHT) planning.

He explains: “There is the obvious IHT planning to consider. This is normally arranged on a whole-of-life basis, using a single life, or on a joint life, second death basis.”

Alternative

There is some appeal for specific over 50s plans, not just because that silver fox Michael Parkinson appears on some of the adverts for such plans, and offers a free pen to those who take up the offer.

“A common protection ‘sold’ to the over 50s is over 50s life plans, typically used to cover funeral costs or leave a small nest egg to loved ones,” says Mr Harvey. “While these certainly serve a purpose, there are drawbacks to such plans.”

For example, with some plans, if someone dies within what is horrendously termed an ‘initial survival period’, there is no payment, although some plans will pay out some refunds of premiums.

I think insurance companies are very inclusive these days, and will not stop an older person from getting insurance.
--- Jennifer Gilchrist, Royal London

As Mr Lakey says: “Mathematically it makes no sense for anyone in good health, because the cost is approximately double that of a plan, where health information is provided.

“Where someone is in bad health, it is a worthwhile consideration, as they will obtain guaranteed cover with the proviso that death within 12 or 24 months only results in a return of premiums.”

Never too late to start

The message is that while protection insurance is “absolutely something that over 50s should be thinking about”, in Mr Harvey’s opinion, it is vital to start the protection conversation as early as possible with clients, as every year can count when it comes to cost.

Indeed, as Mr Hamilton comments, some term plans are now commonly available for people aged up to 90 years old. But he emphasises the fact “customers’ needs, and indeed customers themselves, are not all alike”.

“Some may have IHT liabilities, some may have dependent children and dependent parents, and therefore they need to be aware of the financial risks they run.”

So the adviser has a job to do in understanding the client and helping them get the right policy to fit them. But how hard is this to do? Are providers still reluctant to cover people in their later life?

It seems not. Mr Hamilton adds providers are “creating plans with greater flexibility to meet these changing life stages and lifestyles”.

Ms Gilchrist agrees: “I think insurance companies are very inclusive these days, and will not stop an older person from getting insurance.

“It is all about trying to work with the illnesses and situations that different people have, and provide them with some form of insurance.”

Simoney Kyriakou is content plus editor for FTAdviser


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