This guide explores how your need for insurance cover changes through the different stages of your life, to help you recognise when to maintain, reduce or cancel your policy.
That £50 monthly life insurance premium looked sensible when you had a young family and a hefty mortgage. Now you’re 55, you have only five years left on your mortgage, and your children have their own careers. Is it still worth paying £600 a year for cover you might not need, especially if it’s for decreasing term assurance with reducing cover and your health is good?
Deciding how long to maintain life insurance puzzles many people. Cancel too early, and you leave your loved ones vulnerable. Keep it too long, and you’re wasting money that could boost your retirement savings.
The challenge lies in identifying when protection becomes an unnecessary expense.
Unlike home or car insurance, which you need while you own these assets, your life insurance requirements evolve subtly over time. This guide explores how your need for cover can change through the stages of your life, to help you recognise when to maintain, reduce or cancel your policy.
Why life insurance matters
Your financial responsibilities will shift dramatically over your working life.
As a young parent with a £250,000 mortgage and two or three children under ten, you carry enormous financial obligations. Fast forward 20 years. Your mortgage is nearly cleared, the children are self-sufficient, and you’ve accumulated substantial pension savings. Keeping your life insurance beyond your needs drains money that could strengthen your financial position in later life. For example, a 60-year-old paying £100 monthly for cover could invest that £1,200 annually instead, potentially adding £18,000 to their retirement fund over a decade.
Yet, cancelling prematurely can be risky. What if your spouse couldn’t maintain the family home on their income alone? Could your children complete university if you passed away suddenly? Would your business partner have funds to buy out your shares?
Your life insurance needs typically follow a curve. They rise sharply with marriage, mortgages and children, plateau during your peak earning years, then decline as your debts reduce and your dependents become independent. Understanding where you sit on this curve will help you optimise your life insurance cover and premiums.
The goal isn’t to keep insurance forever or drop it at some arbitrary age. It’s about maintaining appropriate cover while you have dependents or debts, then redirecting those premiums once the need passes.
Life insurance for young families
Life insurance is essential when you have a young family. One or both parents dying could devastate the survivors financially.
Your mortgage drives much of this need. A £300,000 mortgage requires substantial cover to prevent forcing your family from their home. Add living expenses until your children become independent, and your cover needs soar. The childcare costs alone could overwhelm a surviving spouse.
Most young families benefit from 20 to 25-year term policies that align with their mortgage and children’s dependency. For example, a 30-year-old with a 25-year mortgage and a newborn might need cover until age 55. By then, their mortgage is clear, and their child is self-supporting.
Life insurance in middle age
Your insurance needs might shift in your 40s and 50s. Your mortgage has shrunk or is even paid in full. Your children are more independent. You’ve accumulated savings and a pension pot.
So, while your need for absolute cover has decreased, you’ll still need some degree of protection against the unexpected. The key at this stage of your life is right-sizing your life insurance cover to match your reduced obligations.
If you’ve accumulated more than £200,000 in accessible savings and investments, you’ve effectively built a safety net that makes life insurance unnecessary. Your pension might include in-service death benefits worth two to four times your salary, further reducing your insurance needs. It’s always best to speak to a professional financial adviser if you’re unsure about any of your pension or insurance terms and conditions, and what they mean for you.
Approaching retirement
Your life insurance needs tend to diminish as you move towards the end of your working life. This stage often marks the sensible endpoint for term life insurance. Why pay increasing premiums to protect dependents who no longer depend on you?
Once you’ve built up substantial savings and investments, you might not need life insurance at all. If you have £500,000 in pensions and investments, your spouse would inherit significant assets if you died. Why pay high premiums for life insurance when you might already have enough money to look after your family? Your £100 monthly premium could enhance your retirement lifestyle or boost your grandchildren’s savings.
It’s rare that an adviser will recommend a ‘convertible term’ which can switch over to guaranteed whole of life cover. And if your diversified pension pot is performing well, combined with sufficient other savings to cover your essential expenditure, your life insurance premiums could potentially be targeted elsewhere.
However, it’s worth bearing your Inheritance Tax liabilities in mind at this stage. For a married couple, if your estate is worth more than £1m, your family could face a huge tax bill when you die. Life insurance written in trust can provide ready cash to pay this tax without forcing your family to sell assets to pay any IHT due within six months of your death. Fixed-term and whole-of-life policies can be written in trust. While the premiums can be higher, the peace of mind they can buy for you and your loved ones can be priceless.
Not everyone follows the typical pattern of needing less life insurance as they get older. Your circumstances might mean you need cover for longer.
Starting a second family changes everything. If you’re 50 with a new baby, you’ll need life insurance just like someone in their 30s would. You might need cover into your 70s to see these children through university. Writing insurance policies in trust for your children can avoid ‘second marriage syndrome’ where the new partner inherits all and the children effectively dis-inherited.
If you’re the carer of someone who’ll always need financial support, such as a disabled child, your life insurance might be their only security after you’re gone. You can set up special trusts that provide for them without affecting their benefits.
And some people financially support elderly parents. If you’re paying for a parent’s care, your death could leave them unable to afford it. You might need life insurance until they no longer need your support.
Finally, don’t forget other debts beyond your mortgage. If you’ve personally guaranteed business loans, have equity release or other significant debts, these could cause serious financial problems for your family if you don’t have life insurance.
Can your health reduce your life insurance premiums?
Your health can significantly impact your life insurance premiums. If you’ve developed a serious health condition since taking out your policy, you might struggle to get an insurance firm to take on the risk or increase your existing cover. This situation could leave you ‘locked-in’ with your current policy, even if it seems expensive, while cancelling could leave you uninsurable.
However, any improvements to your health could result in cheaper cover. If you’ve stopped smoking for 12 months, lost weight, or recovered from back problems, mental health issues or other conditions that have increased your premiums in the past, you might qualify for better rates now. Moving from hazardous or physical work to a desk job could also reduce your premiums.
Advances in medical treatment also mean that many health conditions once considered high-risk might not be any more, so it’s always worth checking. Many insurers update their pricing using the latest mortality data from the Office for National Statistics. It means a 60-year-old today might be able to get a better rate than someone of the same age would have been able to get five years ago.
Any positive changes to your health could mean significant savings. That’s why it’s essential to review your circumstances annually with your financial adviser.
How can Heathcote Financial Planning help?
At some point, life insurance will stop making financial sense for you. The premiums you pay will start to outweigh any benefit your family would receive, and the money you spend on them could be doing more useful things. This usually happens after age 60, but it depends on your situation.
However, working out how long to keep your life insurance isn’t straightforward. There’s no one-size-fits-all solution. Your debts, assets, family circumstances, business interests and personal goals all matter.
At Heathcote Financial Planning, we’ll look at your complete financial picture to help you decide how much life insurance you might need, or if you need any at all.
We’ll review what you owe, who depends on you, what assets you have and what you want to achieve. We consider things you might miss, like in-service pension benefits, your potential IHT liabilities and any business insurance needs. And regular reviews will help keep your level of cover appropriate as your life changes.
You shouldn’t overpay for life insurance you don’t need, but you also shouldn’t leave your loved ones unprotected. So, if you’re ready to review your life insurance, book a consultation today to learn how we can help you restructure your cover for better value, to make sure it matches your actual needs.
Disclaimer:
The information provided is for general information purposes only and does not constitute financial or insurance advice. Products such as life insurance, mortgage protection, critical illness cover, and income protection are subject to eligibility, terms, conditions, and exclusions. The suitability and cost of any policy will depend on your personal circumstances, health, and lifestyle.
You should not make any decisions about purchasing or cancelling insurance policies based solely on this content. Always seek professional advice from a qualified financial adviser who can assess your individual needs and help you choose the most appropriate cover.
Please be aware that non-disclosure of relevant information could lead to a claim being declined or the policy being cancelled. The tax treatment of insurance benefits depends on your individual circumstances and may change in the future.
If premiums are not maintained, then cover will lapse, and you may not be covered if a claim is made.
Company registration: Heathcote Financial Planning is a trading style of The Mortgage and Protection Partnership Ltd, authorised and regulated by the Financial Conduct Authority (No: 612049). Registered address: Olympus House, Olympus Park, Quedgeley GL2 4NF. Company No: 08734287.