Is over-50s life insurance a waste of money?

Despite celebrity endorsements, over-50s life insurance has a bad reputation. But can it work for some people?

Once you hit 50 you migth think you don't have to worry about life insurance. But various insurance policies specifically targeted at over-50s and aimed at covering things such as funeral costs can seem tempting, particularly as they're often endorsed by respected celebrities.

However, Which? recently criticised a swathe of products aimed at over-50s, including some over-50s insurance policies, more commonly known as over-50s plans. But are they really that bad? Do they work well for some people?

Over-50s plans

These have become more and more popular and are heavily advertised on TV and in newspapers.

They work quite simply: you pay a premium each month and when you die your beneficiaries will receive a payout. However, there is a catch with a lot of these policies, in that the payout is capped but your payments in aren’t.

So, depending on how long you live, you could pay in far more than your loved ones will get out.

The benefit of an over-50s plan for some people is there are no medical examinations, so if you’re not in the best of health you can still get covered. You can choose the level of payout based on how much you’re willing to pay in each month.

The payouts are much smaller than you would receive from an ordinary life insurance policy. Many providers try to mask this somewhat by offering a free gift when you sign up.

You should note that a claim won’t be paid out if you die in the first couple of years. Instead, your payments will generally be paid back to your family.

And if you stop your payments before the end of the plan your money will be gone and you'll get nothing in return.

General life insurance

By the time you reach your 50s, taking out a traditional life insurance policy is, unsurprisingly, more expensive than if you’d done it in your younger years. You have a choice of two avenues, depending on your needs: level term or decreasing term.

Level term pays out a fixed sum in the event you die during the life of the policy, otherwise known as the term. This type of cover generally expires at a certain age, such as 65 or 70, depending on who you buy it from.

Decreasing term, as the name suggests, decreases as the term goes on, so is suitable if you only want to cover something like a repayment mortgage, which will decrease over time.

Both will pay out far more than an over-50s plan and always more than you’ve paid in. However, you may need to undergo a medical examination before you can get cover and the cost of your monthly premiums will depend on your health.

Other options

If you’re in good health and still in your 50s and 60s, you’re probably better off looking for other ways to leave something behind or cover your funeral costs – such as putting money aside in an Isa.

If it’s just the funeral you want to cover, you could consider taking out a pre-paid funeral plan.

You can tailor this to the funeral you want, and it can fix the price now, so you're not hit by rising costs. Just be aware that if you live for a long time you could end up paying more into the plan than the funeral costs.