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The Life Insurance Money Pit

Author: J Tillotson | Date: 29/11/2007

Category: Elderly Care | Subscribe: | Share It:

Article Tags: Life, Term, Insurance, Assurance

We’ve all seen the adverts on television – life insurance offered to people above a certain age, with no medical needed, attractively low premiums, cover for the rest of your life, and a lump sum paid out on your death.

They always have well-known daytime TV celebrities advertising them from a nice cosy home, and offer a lovely free gift that you never knew you wanted until you saw the advert. These policies began to appear in the late 1980’s and early 1990’s, and are still being sold today, although not in such vast quantities.

But are they really as good as they appear to be? The answer is, unfortunately, no.

What the adverts fail to tell you is that the nice low, easily affordable premium you pay at the start may only stay that low for a maximum of 10 years. After that, it could rise to an obscene level which you’ll either have to dig into your well-deserved pension to pay for, or have the value of your cover slashed beyond recognition.

Those who took out life insurance to pay for their funeral expenses, or to leave tax-free money to their children, were amongst the ones most commonly targeted by unscrupulous insurers.

One such example is the 70-year-old gentleman who took out a policy in 1991, paying a premium of just under £29 per month, to pay out £87,000 upon his and his wife’s death.

Last year he received a letter from his insurance company informing him that in order to maintain the level of payout, his premium would be increased to a shocking £270 per month! The worst part is, if he cashes the fund in to avoid this massive premium surge, the value of it will plummet, leaving the last 16 years of paying his premium worthless.

This scenario is sadly becoming all too common as more and more pensioners are being lured into taking out these too-good-to-be-true policies. Part of each premium that you pay covers your insurance, and the rest is invested. Theoretically, investments will grow enough to cover the increases in life insurance. But if the investments don’t make target, then premiums must increase to cover the shortfall.

Pensioners wanting to cover funeral expenses are better off placing their money in a saving scheme rather than a life assurance policy. At least their estate is guaranteed a payout after their death, while a combined life and investment policy is likely to be far more expensive.

A term assurance, or PTA policy may be useful for some types of inheritance tax planning. What you do is insure against the amount that your estate is likely to be over the IHT limit. So if your estate is likely to be worth £320,000, this is £20,000 over the current IHT threshold of £300,000. Therefore you insure for £20,000.

The term assurance policy pays out a lump sum if you die before the end of the agreed term, paying off your likely IHT bill. Premiums are likely to be high – you are taking out insurance in old age, after all. But many people find their families, especially their children are prepared to pay the premiums. After all, it will save them tax in the long run.

The Life Insurance Money Pit articles

Article Source: http://www.articlesbase.com/elderly care-articles/the-life-insurance-money-pit-270515.html

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