Do we need life insurance?
Can there be situations where it is worthwhile for a retired person in their sixties to take out life insurance? Are premiums prohibitive, bearing in mind that many will have one or two health impairments? Why do you need the cover? C.W., North Yorkshire
Danny Cox: The cost of life assurance is related to life expectancy so the older you are and the worse your health is, the greater the cost. If this is to protect your spouse the likelihood is that the premiums would not be affordable relative to the benefits. The most common use for life assurance after age 60 is to insure against an inheritance tax liability. For a couple the premiums are much cheaper because the plan does not pay out until second death.
My partner & myself have no children, so do we really need life insurance? We are fairly mobile and could stay with family & let the flat and we have some savings for the short term. From what I understand, life insurance pays off half the flat if partner should pass away. If this were to happen, we would probably sell the flat. Does it also include mortgage repayments in the case of illness or unemployment? E.S., London
Kevin Carr: Generally speaking, anyone with debts and/or dependents has a need for financial protection, but without children life insurance might not be the main priority. Instead of life insurance, I would suggest considering long-term Income Protection, which pays a regular tax-free income if you are unable to work due to ill health, and also unemployment if necessary. This should not be confused, however, with short-term payment protection insurance, which is inferior by comparison for many people. However, if you plan to have children in future then it would make sense to buy life insurance now while you are young and healthy and while the cost is low. With regards to what life insurance does, you are free to choose how much you would like to be insured for and for how long. You could therefore insure half of the mortgage, all of the mortgage or more, and cover can either decrease with the mortgage, remain level, or increase with inflation.
Insurance doesn't add up
I am really at loss as what to do. I am self-employed, married with 2 kids (2 & 4) and a mortgage. I also have some pension savings. I read the The Times A-Z Money a few months back about how life insurance has never has been cheaper. I am 37, normal health, no smoking & don't drink alcohol, exercise. In that article, there were some examples from Friends Provident at £8,50 or so per month for 25 years / £150,000. This sounds absolutely right on the money to me, but when I have checked with my IFA for same company, he quoted me twice that. Can you tell me if I should do the payout to a trust as to avoid IHT? Is this loophole most likely going to be plugged? I feel I now understand a bit of the various policies, but what should I have to pay for fixed sum, lump sum payout with fixed monthly for around £250,000 per adult (single)? J.S., Buckinghamshire
Kevin Carr: The quotes may have varied because of the recent availability of tax-relief on life insurance, which came into effect from April this year. Otherwise, as long as the details are the same, the prices should be similar. With regards to the use of trusts with life insurance policies, speaking generally, most policies should be placed in trust, not just to avoid IHT, but also to speed up the payment in the event of a claim and also to make sure that the monies go to the right person. A solicitor or an IFA can arrange a trust for you, even for existing life insurance policies. Taking out £250,000 of life cover of 25 years for a non-smoking male aged 37 would cost around £16pm with tax-relief for a higher rate tax payer. Without the tax-relief normal life insurance would cost around £25pm.
I'm 67 my wife is 30 years younger we have two girls aged 10 and 7. it is difficult for me to get any sensible life cover at my age as it amounts to nothing very much in the event of my death. what is the best thing for me to do? K.P., Birmingham
Danny Cox: The cost of life assurance is related to your life expectancy so the older you are and the worse your health is, the greater the cost. The likelihood is that the premiums would not be affordable relative to the benefits. You could try pension term assurance where the tax relief on the premiums might reduce the net cost of the cover. You could pay up to £3,600 a year in premiums under this type of plan. Without knowing your circumstances it is difficult to suggest an alternative. But it might be a good plan to save any spare money in cash based deposits or alternatively longer term regular savings Unit Trust ISAs depending upon your attitude to risk.
Cover to offset IHT
I am considering taking out a Life Insurance Policy to offset Inheritance Tax. Is that a good idea? And if so, who do you recommend? M.McC., Lincolnshire
Danny Cox: It can be a good idea to do this, because it can be a very tax efficient way of reducing the effect of inheritance tax on your estate. These policies have the greatest tax planning value in the early years as the premiums paid relative to the possible death benefit are very low. I would recommend a provider who offers a whole of life plan with a guaranteed premium rate. Legal and General, Skandia and Zurich are amongst the companies that offer this facility. The premiums are more than those policy with those with reviewable rates, however, at least you won’t be faced with premium increases in the future.
Short-term cover
I will be made redundant at the end of this month. As a reult the life insurance I currently have will disappear. Many of the policies I have looked at have a minimum of 5 years. I expect to have a new job within 3 to 6 months. How do I get short term life (and possibly critical insurance) insurance. P.R., London
Danny Cox: Short term life assurance can be purchased through independent brokers with companies such as Lutine Assurance. You would probably be better to buy a term assurance plan with a longer period or 5 or 10 years. The difference in the cost would be small, but you would have the insurability guaranteed and could always cancel the policy when you had a new job and new death in service benefits. The problem would arise if you had a change in your health with a very short term plan which might mean that getting further cover could prove difficult.
Cover after cancer
I was turned down when applying for life insurance a while ago, as I was diagnosed with breast cancer in Jan 2003. Following surgery radiotherapy and tamoxifen (of which I have another 2 years to go), I am now fit and healthy. Are there any companies that would consider insuring me? J.K., West Derby
Kevin Carr: When there is a recent history of a potentially serious illness, such as cancer, then depending on the individual circumstances it is common for insurers to either decline or postpone applications for life insurance for five years or longer. The more advanced the condition the less likely the chances of finding cover. That said, the cheapest companies are often the ones who underwrite more harshly, hence cover might be available from a specialist insurer who might initially appear more expensive. There are also some policies, such as over-50s plans, which require no medical underwriting. I would suggest speaking to an independent broker or IFA who specialises in protection, however, if cover is available it may cost significantly more than the normal premiums.
