Royal London

Protection into pensionhood

Ellie Duncan

Deputy Content Plus Editor, FTAdviser

It is never too late to buy protection to help you in later life. Ellie Duncan reports.

The Baby Boomer generation, usually those born between 1945 and 1964, are often considered to have it all.

Many of this generation have retired with a good workplace pension scheme, and own their home, as well as have access to improved healthcare.

But perhaps one thing they do not all have is suitable protection which will see them through until their final days and cover all eventualities.

Some may mistakenly think once they have reached retirement it is too late and too costly to take out insurance.

Nick Telfer, product and marketing director at British Friendly observes: “In the past, the demand for protection for those approaching or in retirement was lower as they benefited from guarantees associated with final salary pensions from their employers.

“The reality is that the vast majority of protection bought in the UK is term based and ends at or before retirement, with the result that cover ends at the very point when the need for it is increasing. Age brings an increased medical history which can put further strain on insurability and affordability.”

What does it mean

Fortunately, as Jennifer Gilchrist, proposition lead at Royal London, acknowledges, it’s never too late to buy protection.

“Although the price increases the older you are when you take out a policy, having some cover in place is better than none as it will at least provide some form of protection for later life or other needs, such as leaving a legacy,” she adds.

Getting financial advice is key here to make sure the right rate type is selected according to circumstances and needs. – Jennifer Gilchrist

With the likelihood of more medical issues in old age, protection will inevitably cost more.

However, this should not deter the Baby Boomers, as there are plenty of options available.

Alan Lakey, director at Highclere Financial Services explains: “Most insurers will offer whole of life plans and allow applications into the mid-80s.

“With term assurance plans, consumers can take plans till age 90 and can apply, in some cases, up to age 85.

“Whole life really is the best because whether the issue at hand is funeral cost or IHT [inheritance tax] liability they are both triggered by death and a non-whole life plan might end before the person has died, making the exercise pointless.”

“Consumers who think traditional insurance policies will be too expensive or they won't be accepted because of their age, can opt for one of the many products on the market specifically designed for people like them,” suggests head of protection propositions at LV=, Chris McNab.

“Some products, such as over-50s life insurance, can be more affordable, and while taking life cover at this age may seem expensive, in reality having protection in place can be invaluable.”

He notes: “Consumers who take out protection can benefit from support throughout their policy from value added services that come with their product.”

Some of the benefits to LV= members include access to its member care line, which offers counselling and legal support.

British Friendly recognises the needs of those who are left to care for older members of the family and has free discretionary care assistance benefit for all its insured members, which pays them a regular weekly amount for a period if their spouse/partner, child or parent needs full-time care, according to Mr Telfer.

The price is right

If all this is beginning to sound like it might add up, there are ways for Baby Boomers to keep the costs of a protection plan down.

Ms Gilchrist finds that whole of life cover is the most popular product among older people.

“Our Pegasus policies provide options for reviewable and guaranteed rates. Reviewable rates start off lower and more affordable but increase substantially the older the person becomes,” she cautions.

There are many different protection products available that are better suited to different people at different stages of their lives. – Chris McNab

“You could end up paying more for reviewable rates than for guaranteed rates over the lifetime of the policy, so getting financial advice is key here to make sure the right rate type is selected according to circumstances and needs.”

With other costs to consider, the Baby Boomer generation are likely to want to keep protection costs to a minimum.

Paul Roberts, head of protection at Old Mutual Wealth, says there is a way.

“One cost-effective option is to take out a hybrid protection policy and buy both a guaranteed whole of life (GWOL) plan, which has a fixed cost, and a rolling term product, which sees the cost start lower and steadily rise,” he points out.

“This would reduce the cost of cover for the early years and offers the possibility for a client to reduce their cover in later life.”

He offers an example of a male client, aged 57, who wants £100,000 in cover.

“If they opt for just a GWOL plan, the premium would be £200pm [per month]. But if they decided to split the cover 50/50 between a whole of life product and a rolling term product, the premium for the GWOL would be £122 and the premium for rolling term would start at £41 per month, increasing every 10 years.

“Then if, after 10 years, the client has less of an IHT liability, since they’ve gifted some of their estate and so need less protection, they can review their rolling term plan and reduce or close it.”

Making a choice

With people living longer, and the healthcare service and welfare system in the UK coming under increasing strain, having comprehensive protection to see you into old age will be vital.

Mr McNab suggests Baby Boomers need to think about additional protection products, other than traditional life insurance policies.

He explains: “There are many different protection products available that are better suited to different people at different stages of their lives – depending on whether they have a family they want to leave money behind for, or if they’re worried about paying the mortgage or bills if they couldn’t work.”

Ellie Duncan is deputy content plus editor for FTAdviser

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