New Which? Money research reveals that life insurance payouts can outstrip those of over-50s plans by up to 40%.
Taking out a life insurance plan instead of an over-50s plan could see you leaving more than 40% more to your loved ones when you die.
For example, a 50-year-old non-smoking man, paying £10 per month, would receive £6,299 from the best whole of life insurance (WOL) policy on death – 41% higher than the best over-50s plan at £4,480.
Life insurance still better at older ages
Even as you get older, life insurance generally remains better value. The same man taking out an over-50s plan at age 75 could receive cover of £1,445 from a life insurance policy for his £10 monthly premium, compared with £800 from the best-paying over-50s plan. That’s an increase of 81%.
However, it’s worth noting that he can stop paying monthly premiums into the over-50s plan at age 90, but still keep the same level of cover. By contrast, you must continue paying premiums until death with a WOL policy. This means that if he dies at 105, he’ll have paid £3,000 in life insurance premiums (plus a £35 set-up fee in our example), but only £1,800 on the over-50s plan.
Even with that in mind though, the life insurance policy offers better overall value as it pays out 81% more than the over-50s plan, compared with an increase in the total premiums paid of 69%.
Life insurance and over-50s plans compared
The table below shows the payout that would be made on death for a non-smoking man taking out a life insurance policy and an over-50s plan at either 50 or 75, as well as the total premiums payable.
|Life insurance vs over-50s plans for a non-smoking man in good health|
|Whole of life insurancea||Total paid in premiums||Best over-50s planb||Total paid in premiumsc|
|50 year old|
|1 year in||£6,299||£120||£180 [d]||£120|
|5 years in||£6,299||£600||£4,480||£600|
|10 years in||£6,299||£1,200||£4,480||£1,200|
|20 years in||£6,299||£2,400||£4,480||£2,400|
|30 years in||£6,299||£3,600||£4,480||£3,600|
|75 year old|
|1 year in||£1,445||£120||£180 [d]||£120|
|5 years in||£1,445||£600||£800||£600|
|10 years in||£1,445||£1,200||£800||£1,200|
|20 years in||£1,445||£2,400||£800||£1,800|
|30 years in||£1,445||£3,000||£800||£1,800|
- Whole of life insurance policy from Legal and General and sold through Cavendish Online. Rates correct at 24/02/12
- Shepherds Friendly over-50s plan. Rates correct 24/02/12
- Premiums cease being paid at age 90 in the over-50s plan
- For the first two years, the policy will pay out one and a half times the premiums paid in. If your death is caused by an accident, then the plan will pay out in full
Are over-50s plans ever better than life insurance?
One advantage of over-50s plans is that they require no medical underwriting, so poor health makes no difference to your payout. Whole of life policies will pay out less if you’re in poor health when you take them out.
You usually need to survive beyond the first two years of an over-50s policy to receive the full payout though.
Life insurance is not the only protection insurance to consider
Which? protection insurance expert Martyn Saville commented: ‘If you’re thinking about taking our an over-50s plan, always compare it with the best life insurance policies first as you could get a better deal, particularly if you’re in good health.
‘Before buying either product though, it’s worth thinking about your wider protection needs. Life insurance will leave your family a lump sum if you die, but it won’t pay out if you’re unable to work due to long-term illness. A financial adviser could help you assess all your protection needs and help you select insurance tailored to your exact family circumstances.
‘And if you do choose to buy life insurance, always pay a fixed premium for your cover. Reviewable premiums may be cheaper at the outset, but can rocket in later years.’