How to find the right life insurance for your parent
If your parent is considering life insurance for the first time and faces bewilderment at the level of choice Ashley Shepherd, Managing Director of Over50choices, offers his guidance through a diverse market.
Firstly, you should review any policies your parent may already have in place and consider whether there is a need for a new life insurance plan.
If they do require additional protection, it is important to think about what the cover will be used for, how much life cover they think they will need and of course, how much they can afford on an ongoing basis. Monthly premiums can be payable for a long time, in some cases for life so your parent needs to take into account any likely changes to their income during that period and be sure they are comfortable with the amount.
Depending on the age of your parent, their needs for life insurance will vary which will in turn reflect on the type of life insurance they choose. Things to consider are as follows:
- What financial impact their death will have on family members (husband, wife, children, grandchildren)
- Is there a mortgage to protect?
- Are there any outstanding debts or loans that need repaying?
- Will Inheritance Tax be an issue?
- Who and how will funeral costs be covered?
- Whether they would like to leave a legacy for family of friends?
The cost of Life Insurance
Life insurance prices depend on a number of factors including your parent’s:
- Habits (smoking, drinking etc)
- Type of insurance plan
- Choice of insurer
- Level of cover
One size does not fit all
Once your parent has considered why they need the cover and the level of protection required, the next step is to decide which type of life insurance policy best suits their budget and personal situation; Whole of Life Insurance or Term Insurance.
Whole of Life Insurance
A Whole of Life Insurance plan does exactly what it says on the tin; Your parent pays a monthly premium for life or until a certain age (usually around their 90th birthday) and in return a cash sum is paid out when they die.
There are two key types of whole of life insurance to choose from; Guaranteed Over 50 Life Insurance and Underwritten Life Insurance.
Guaranteed Over 50 Life Insurance
A popular choice with the Over 50s mainly because of their simplicity and affordability. Your parent is guaranteed acceptance with no medical or health questions to answer so the state of their health is not taken into account. They will be fully covered after an initial period of either 1 or 2 years (depending on the plan provider). If they die during this time the full cash payment would not be paid but all of the premiums paid out would be refunded.
Underwritten Over 50 Life Insurance
An Underwritten Life Insurance Plan also pays out an agreed cash sum on death but the application process is longer and does include health and lifestyle questions. These types of plans offer immediate protection and could provide at least 40% more cover, so it is worth taking time to compare both guaranteed and underwritten over 50 life insurance plans, especially if your parent is in good health.
Term Life Insurance
Like Whole of Life, Term life insurance also pays out a cash sum in the event of death but only if the death occurs within an agreed timeframe. Basically the cover is in place for a fixed period of time (the ‘term’). If your parent dies within that period the cash sum will be paid out; if they die once the policy has ended, no money will be paid.
Level Term Life Insurance
If your parent chooses a level term policy this means that there’ll be a lump sum pay-out if they die within a fixed period of time. The amount of money that’s paid out upon their death is set so remains the same throughout the term of the policy.
Decreasing Term Life Insurance
If your parent chooses a decreasing term policy the insured amount of money decreases by a set amount in line with a repaying a mortgage or personal loan. Your parent can choose the rate at which their cover decreases ensuring that their policy always pays out enough to pay their mortgage or other debts they may have.
Increasing Term Life Insurance
If your parent chooses an increasing term policy the cover will be based on their health at the time the policy was originally taken out. For parents who want a long term insurance plan this could be an ideal option as the value increases over the life of the policy taking into account yearly inflation rates.
Convertible Term Life Insurance
If your parent chooses a convertible term policy they’ll receive cover not dissimilar to a level term policy – if they die within the fixed time period a set amount will be paid out. The only difference is they have the option to “convert”. This means your parent will be able to adapt the plan as and when they need to and they won’t be asked any health questions at the time of conversion.
Renewable Term Life Insurance
If your parent chooses a renewable term policy they’ll be able to renew when it expires regardless of their state of health. Similar to level term insurance a guaranteed amount is paid out upon your parent’s death should they pass away within the term of the policy. There’s usually an age limit with renewable insurance so beware the cut-off point.
Most term insurance policies offer a critical illness option which may be worth considering but this will increase the monthly premium.
Surfing for a saving
In a world of confusion, the internet is proving invaluable to those discerning consumers looking for a good service and competitive price. When it comes to choosing insurance, regardless of whether it’s for you or your parent, the internet is king. It’s now easy to research different life insurance policies, read reviews, compare quotes and buy, regardless of your age and more often than not, the best deals available are online.
Protecting the family’s future
It’s likely that conversations about the future don’t come easy as your parent gets older and time seems finite. Making sure that your parent has an insurance plan in place is easier said than done but discussing the benefits of life insurance with them could help them see that they’ll not only protect family finances but their spouse’s future should they have to continue on without them.
It’s not all about inheritance
Depending on your relationship with your parent it’s worth reassuring them that getting life insurance shouldn’t be about your inheritance. Broaching this sensitive subject with your parent could relieve them of any concerns they have for your future without them as well as ensure that they’re getting a policy for peace of mind and to provide for their partner in their absence rather than purchasing it out of pressure to provide for you.
The world is your (parent’s) oyster
Choosing a life insurance plan shouldn’t feel overwhelming for your parent. Letting your parent know that sometimes so much choice can be a good thing will help them embrace the decision they’re making for their life.
As our parents get older they deserve life cover that allows them to be adventurous with the time they have left safe in the knowledge that, should anything happen to them, those left behind will have enough to cover future costs.
Over50choices is a personal finance comparison website for the over 50s authorised and regulated by the Financial Conduct Authority. The Over50choices team take an honest approach to explaining insurance and seek to make life simpler for those of us who just don’t get industry jargon! For more information contact Ashley on [email protected].
If you found this article helpful, why not join the family?