Has Covid-19 affected life insurance policies for seniors?

Elderly couple on a park bench

As we are all too aware, Covid-19 impacts the over 70s much more than younger demographics. The pandemic has had a devastating impact on families across the UK with unfortunately over 115,000 fatalities to date.

The older demographic has proven to be particularly susceptible to the effects of Coronavirus, with 4 in 5 deaths being people aged 70 or over.

Hopefully, with the continued rollout of the vaccine, both here in the UK and around the world, things are improving and we can all get nearer to living a more ‘normal’ life.

Are seniors more likely to contract Covid-19?

No, research suggests that older people that live in the community are actually no more likely to catch Covid than younger people. (Although those living in care homes and assisted living have experienced very high infection/fatality rates, this is as a result of their environment and not thought to be directly related to age).

Unfortunately, however, the risks for an individual if they do contract Covid-19 are much greater as we age. Age is therefore a very important consideration when we assess our own risk from Coronavirus.

This is based on research published on: https://www.ageuk.org.uk/discover/2020/06/coronavirus-risk-for-older-people-updated/

  • Age groups up to and including 60-69, less than 1 in 1,000 people have died from Covid-19
  • Age 70-79, 2 in 1,000 people have died
  • Age 80-89, 7 in 1,000 people have died
  • Age 90+, 18 in 1,000 people have died

As a result of the over 70s demographic being more at risk to Coronavirus, this has led to an increase in life insurance applications, as people seek to protect the financial future of their loved ones, at a time when life feels particularly fragile.

So, what exactly is life insurance?

Life insurance is a financial safety blanket for a worst-case scenario. You make a payment each month, known as the premium, and if you were to pass away during the policy term a predetermined cash lump sum will be paid out to your loved ones.

These funds are commonly used to pay the mortgage/rent, cover family living costs, meet rising funeral costs, provide an inheritance, clear outstanding debt – in fact, the money can be used as the beneficiaries wish.

Generally speaking, the greater the risk you pose to the insurer (or put another way, the greater the chances of them having to pay out), the higher your monthly premium.

The key criteria when it comes to an insurer assessing ‘risk’ are your smoking status, medical history, and, of course, your age.

Pretty logical right? An obese 67-year-old, heavy smoker with a history of heart problems will pay more for their cover than a 28-year-old, non-smoker who exercises daily and has no medical issues.

So, what policy options are available to the over 70s and how has Covid-19 impacted your chances of securing cover?

Over 50s plans

A summary of an over 50 plan:

  • Guaranteed acceptance for UK residents aged 50-85
  • No medical questions asked on the application
  • Easy and fast application process
  • Cover amount up to £25,000

Probably the most common life insurance option if you are 70 or over is an over 50s plan, (sometimes known as a guaranteed over 50 plan).

An over 50s plan offers the easiest policy option as you are guaranteed acceptance if aged 50-85 years and are not even asked any health-related questions.

Therefore, if you have medical issues or have had them in the past, an over 50s plan can be a good option as this will not affect your ability to secure cover.

One important consideration is what is known as the waiting period (or qualifying period). This is a period of time at the beginning of the policy, either 1 or 2 years depending on the insurer, when a claim cannot be made. That said, if you do pass away during the waiting period any premiums paid in will be returned to your beneficiaries, so you have at least not lost out.

Because the risk you pose to the insurer is unknown, they mitigate this by making the premiums relatively expensive for the level of cover you can secure – the maximal sum assured is between £20,00 – £25,000.

Has Covid-19 impacted over 50 plans?

Coronavirus has had no impact on your ability to secure cover. This is because no medical information is required in order to take out an over 50s plan.

Whole of life insurance

A summary of whole of life insurance:

  • Guaranteed payout, (as long as you keep up with premium payments)
  • Much greater cover amount than over 50s plans, (up to £1,000,000)
  • Rest of life cover protection
  • Medical information required during application

A much less well-known over 70 option is whole of life insurance.

With this policy option, a payout is guaranteed as long as you keep up with your monthly premium payments. What’s more, whereas an over 50s plan can only cover you for a maximum of £25,000 (enough to cover rising funeral costs but not much more), whole of life cover can payout up to £1,000,000 (potentially clearing a mortgage, leaving an inheritance, covering a funeral, donating to a charity, clearing debt).

So, what’s the drawback?

The main (potential) drawback is that medical/health questions are asked during the application process and the answers you provide will help the insurer calculate the cost of your premium.

If you are in good health, rather than presenting a threat this can be seen as an opportunity to prove your low risk. In contrast, if you have health problems this could mean your premiums are very expensive, or worst case, if deemed to greater risk, your application may be denied altogether.

Lastly, whole of life insurance, as the name suggests, provides financial protection for the rest of your life. This also means paying premiums for the rest of your life. Seeing as no one knows for sure how long they are going to live, it is difficult to establish if this is a good option for you. In a worst-case scenario, you could pay more into your whole of life policy than it will ever payout.

One possible advantage of an over 50 plan is that some policies allow you to stop paying premiums when you turn 90, whilst cover remains in place. As a result, you could make some serious savings depending on how long you live.

Has Covid-19 impacted whole of life insurance?

Yes, as your health is a factor in your application, Covid-19 has impacted the underwriting process. Insurers will now ask you questions relating to Covid, such as:

  • Have you tested positive for Covid-19?
  • Have you been in contact with anyone that has tested positive for Covid-19?
  • Have you been required to self-isolate at any stage?

That said Covid should not impact your ability to secure cover. Even if you currently have Coronavirus, you are unlikely to be declined outright and it is more likely that the insurer will simply postpone your application until you have made a complete recovery.

Term based policies, like decreasing and level term life insurance, which cover you for a specific period of time (the term), as opposed to for the rest of your life, work in a very similar way; and additional questions will be asked during the application.

These term-based policies tend to be cheaper, as a payout is not guaranteed (you have to have passed during the term). Often a term-based policy is taken out by the 25-49 years demographic as they look to protect their mortgage and/or young children.

The life insurance broker Reassured Ltd have written a comprehensive article on over 70 life insurance which may be of interest. You can also compare quotes for free through their website.

Prepaid funeral plans

A summary of a prepaid funeral plans:

  • Avoid rising funeral costs
  • Guaranteed acceptance
  • Flexible payment options available
  • Funeral Planning Authority (FPA) regulated

When we pass 70, most of us naturally start to consider what we may leave behind for our loved ones. A significant and rising expense to consider (as morbid as it sounds) is our funeral.

According to the insurer SunLife, the cost of a funeral in the UK has risen 130% over the past 16 years and the figure now stands at £4,427 for an average basic funeral.

When you factor in all the associated costs of dying, such as professional fees, this figure rises to an eye-watering £9,493 and it is forecast to continue rising in the coming years.

One solution to avoid spiraling funeral costs is to take out a prepaid funeral plan.

A funeral plan enables you to secure a funeral at today’s rate, avoiding future price rises. It also ensures that these significant costs are not passed to your loved ones or taken from your estate. Lastly, it allows you to define the type of ceremony YOU want, not the service your family think you want.

Has Covid-19 impacted prepaid funeral plans?

Covid-19 itself has not affected your ability to take out a prepaid funeral plan. However, obviously, current lockdown restrictions have had a significant impact on how a funeral is able to operate. For example, currently, in England and Wales, funerals are limited to 30 people, face-covering must be worn, and no singing or chanting is allowed.

The criteria of funerals are constantly evolving at this time, so it is best to check the government website for the most up to date details: https://www.gov.uk/government/collections/financial-support-for-businesses-during-coronavirus-covid-19

How can you avoid life insurance inheritance tax?

Did you know that for anything over the £325,000 threshold you (or your loved ones) will be charged 40% inheritance tax?

Did you know that your life insurance proceeds by default form part of your estate and are therefore are potentially taxable at this rate?

There is a solution to avoid 40% IHT and the probate process.

By writing your life insurance in trust, free of charge, the proceeds from your policy avoid forming part of your estate and are therefore not liable to inheritance tax. What’s more, your beneficiaries also do not have to wait for probate to be granted resulting in a faster payout.

In summary

These are unprecedented and challenging times, especially for our senior citizens from a health perspective. However, that said, it is still very much possible to secure an affordable policy in spite of Covid-19.

Whatever option you decide, in order to save money it is very important to compare quotes as the cost of cover can vary wildly between providers. You can do this via a broker or by using a comparison website.

Lastly, it is important to state that it is very much possible to secure multiple policies. For example, you may want to take out a whole of life policy to leave an inheritance and clear any outstanding debts, as well as a funeral plan to cover those covers.

One thing the last 12 months have taught us is that life is fragile and that we need financial protection especially if we have people who rely on us. Life insurance is a cost-effective option that is well worth considering, even in our senior years.

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