Finding life cover for younger clients is not likely to be a problem, but if the client is older, the age limits that insurers put on their policies may restrict the advisers’ choice. With many mortgages running to later ages and people often needing to work into later life, many older clients will need proper protection in place, and for longer. In this article, we look at which insurers welcome applications from older clients and the maximum age at which policies will expire.
In the past, older clients requiring life cover may have been more concerned about leaving money to their families to cover funeral expenses or putting a life policy in trust to pay any IHT liability. This is still how many older clients will expect the proceeds of their policy to be used; however, more older clients will be earmarking the benefit to pay off their mortgage when they die.
Paying off the mortgage by age 65 is just not possible for some people and this is likely to be more common in the future, for various reasons. In its Sector Views report last year, the FCA predicted that 40 per cent of borrowers who took out a mortgage in 2017 will be aged over 65 when their mortgage matures. There are a number of factors in this; the cost of buying a property has risen in recent years and with wages failing to keep up with living costs, deposits need to be bigger. This means that it takes longer to save, so people are getting on the property ladder later and will inevitably be taking longer than previous generations to pay it off.
Some of today’s older clients looking for life cover may still be working beyond the state pension age, either through necessity or choice. Those who are continuing to work just because they enjoy it may not have a particular need for life cover. However, those who are working because they can’t afford to retire may need life cover, especially if they have a partner or significant debt.
For advisers who have older clients with a need for life cover, there are two factors to be aware of. The first is the maximum age at which someone can take out a policy (maximum age at entry) and the second is the maximum age to which the policy will cover a person (maximum age at expiry). These age limits are often dependent on the type of plan and the basis upon which it is established.
As our table shows, at 88, Royal London has the highest maximum age at entry among all propositions listed. There is a huge 33-year gap between this and the lowest maximum age at entry, which is AIG’s Instant Life plan.
People are more prone to developing health issues the older they get, so underwriting may become more complex with age. Insurer’s do recognise this and some plans, such as AIG’s Instant Life plan, will have a simplified underwriting process and fewer health questions will be asked. The aim is to speed up the application process, particularly where clients have no medical issues. The maximum ages on these plans will generally be lower than average as a result. They are not designed for older clients who will need fuller underwriting to properly assess the risk they pose to the insurer.
Deciding at what age a client’s plan should expire will depend on how the policy is intended to be used. If the client has a specific liability that needs to be covered, such as a mortgage, the expiry date would need to tie up with the mortgage term. If the purpose of taking out a life policy is for family reasons, the age at which the client expects to retire might be a suitable end date for the policy. On the other hand, if the purpose is tax-planning, a whole-of-life plan is likely to be the more suitable solution.
As our table shows, there are a fair number of plans which have the highest maximum age of expiry within the market (age 90). Two of those plans are from The Exeter – the Managed Life and Real Life plans. Aviva and VitalityLife also provide life cover to age 90. Again, AIG Instant Life provides cover until the lowest maximum age, at 69, but the reasons for this have already been outlined above.
From our table, it is clear to see that most plans expire at age 89, which is only a year less than the highest option available in the market. Two AIG plans and those from Guardian, Legal & General, Royal London, Scottish Widows and Zurich all expire at age 89, so advisers do have plenty of choice when clients need cover to last well into old age.
Although not directly relevant to older clients, a brief look at the minimum age requirements at entry may provide a fuller picture of the age criteria insurers apply to live cover.
Zurich and VitalityLife provide life cover from age 16 but this does not mean the maximum age at expiry is limited – quite the opposite as cover expires at age 89 and 90 respectively. Most insurers set the minimum age at 18, including Aviva and Exeter, which have the highest maximum ages for entry or expiry.
Overall, Royal London deserves credit for making life cover available at entry for clients up to the age of 88. However, looking at the maximum age at which cover will expire the insurer has set – age 89 – this means that the few clients who will want a new plan at this advanced age will only be covered for a year before it expires. At this age, and on that basis, advisers may feel it is not worthwhile.
Advisers with older clients may also want to explore the plans from Aviva, The Exeter and Vitality in detail, as the maximum age at expiry is the highest in the market. Although the maximum ages at entry, which range from 69 to 80, are not the highest, it does mean that those who take out life cover at the upper end of the age scale will get some use out of the product before it expires.