Life Insurance for Different Life Stages: What You Need When

It’s hard to imagine that anyone is in much doubt what life insurance is for and how it works. A desire to leave money to the people you love or who depend on you is a powerful reason to build wealth and gather assets in your lifetime. But while you’re working on that project, you can create an instant legacy by insuring your life, so that if you pass away, there’s money to pass on immediately. In a sense you’re insuring your most fundamental asset – your life – and thereby giving it a financial value.

It's an ingenious concept – simple, effective and proven by at least 400 years of successful use. You ask an insurance company to agree on a sum they’ll pay if you pass away. They assess your way of life, your occupation and your health to determine how likely you are to live a long life. Then they calculate how much they need to charge you in monthly premiums to secure the amount of cover you’re looking for. The mechanics are as simple as that.

For you it means peace of mind and future financial advantage for your beneficiaries, who share in the sense of security and peace of mind. For the insurer it means a balance between risk and revenue. It’s ideal for the longest-term financial planning, but it can be equally useful as a short-term measure.

However, the simplicity of the idea conceals its practical complexities. People take out life insurance at different times of life, or they take it out for one purpose then another purpose becomes more important as they grow older. It’s these life insurance stages we’re going to explore.

Like learning the piano or playing tennis, starting young has its advantages. It can be easier to get life insurance when you’re young and in the prime of health, which in turn may make it cheaper. Despite this, many people in the early years of adulthood don’t feel life insurance is something they need to think about. It’s only for people with children or grandchildren, isn’t it? Or homeowners, or those who have jobs or lifestyles that put them at risk. In a word, no. These are some of the misconceptions that can be dispelled by considering your life insurance needs at different stages in life.

Roughly speaking, from the age of 18 into your early 20s, your financial needs and goals may be a combination of paying university fees and starting a career or simply earning some money. At this stage, life insurance may seem a low priority. After all, a student loan is the only kind of debt that gets cancelled if you pass away so you don’t need insurance to pay for it. But as I’ve mentioned above, perhaps the biggest reason to insure your life this young is that the underwriting process is likely to be easier and the premiums lower now than at any time in the future. You may not walk into a particularly well-paid job, but finding a few pounds a month for a life insurance policy can set you on the road to a sound financial future. Bear in mind that some life policies include a savings and investment element, which means your insurance can actually benefit you during your life.

Of course we’re not just talking about married couples, but also anyone who’s in a civil partnership or just co-habiting. The important factor is the mutual dependency that arises when you commit yourself to a partner. Today the average age for getting married in the UK is 31, compared to 23 in the 1970s, so partners are usually well-established in the world of work.

This means most couples today have dual incomes and even without joint bank accounts they pool their finances to meet housing costs, household bills and other essentials. If one partner dies, the survivor could struggle to maintain their lifestyle on only one income, so life insurance offers them security.

Some couples choose to take out joint life insurance, which has the same effect of paying the survivor. The policy ends on the death of one partner, leaving the other without life cover, but one advantage of joint policies is that the premiums are generally cheaper than having two individual policies.

Having children can change everything. It’s the next – and possibly the biggest – life transition. The birth rate in the UK is the lowest it’s been since the 1970s, but there are still around 600,000 babies born every year and the average age for first-time parents is around 31. When that first child comes along you may find yourself radically reordering your priorities. For most people, the joy of parenthood outweighs the shrinking of your disposable income and long-term financial planning takes on a new urgency. If you pass away while your children are still at school, life insurance could be one of a very few ways to make sure they’re looked after until adulthood. Keeping a roof over their heads is only the start of your obligations while they’re growing up. Even with the costs of childhood taken care of, your intentions may extend further, with cover that can support them while they find their feet in the adult world. As a parent, no matter how old you and your children get, providing for them may remain a priority for you.

The majority of first-time homeowners buy with a mortgage loan, which for most people is the biggest financial commitment they’ll ever make. The average repayment period for a mortgage is 25 years but some can last for 40 years and, unlike student loans, the obligation to repay continues after you pass away. This means responsibility for the debt passes to your estate, and therefore the beneficiaries of that estate. If there’s not enough money to cover the debt, the lender could repossess the home, leaving your family with nowhere to live or, at the very least, extinguishing a valuable asset you hoped to pass on.

Life insurance is an effective way to protect your mortgage and therefore your home. Some policies are designed specifically for this purpose, but any kind of life insurance can have the same effect. If your only concern is to make sure the mortgage is paid off when you die, you might consider a decreasing term life policy, in which the sum assured decreases as the balance you owe falls. Decreasing policies are generally cheaper than level term policies, where the sum assured remains the same throughout.

The definition of middle age is fluid, but today it’s generally taken to mean the years between 40 and 60. As the state pension age increases, that period may be stretched but for now it’s a reasonable guide. In many people’s lives this is the time when they’re reaching the top of their earnings potential, their children have grown up and – housing market allowing – left home. Some people will be close to paying off their mortgage so another reordering of financial priorities may take place.

Now that the financial obligations of earlier years have largely disappeared, your financial planning is likely to shift its emphasis towards debt repayment and estate planning. 

Life insurance and estate planning

What exactly is estate planning? It’s the practice of arranging your financial affairs to make sure your loved ones are provided for and your wishes are carried out after you die. It can also be an efficient way to protect your assets and minimise any inheritance tax, by providing funds to pay off the tax, by passing a tax-free sum via your life insurance policy to your loved ones or by taking the extra precaution of putting your life insurance policy in trust.

Many insurers offer specialised policies that can be taken out when you’re over 50. They often cover you for the rest of your life and require little or no medical assessment, but they tend to be more expensive as a result. A standard policy taken out earlier can be just as suitable, but if you leave it late this is an option to consider.

The date at which you qualify for your state pension is 66, the same for men and women, although this is set to rise from 2026. Many people are choosing to work longer than this but the average retirement age is 65. If you’re on the verge of leaving the world of work, do you need life insurance after you retire?

In many cases, mortgages and other long-term loans will have been paid off. If you have children, they will probably be fully self-sufficient, possibly with children of their own. Nevertheless, life insurance can be as important as ever.

<H3>How much life insurance do I need in retirement?

If you’ve started thinking about estate planning in middle age, it may come into sharper focus once you reach retirement. Not only does the prospect of Inheritance Tax become more pronounced, with the narrowing of the 7-year window in which you can gift money and assets to others without incurring tax. You may now have the clearest idea yet of exactly who you want to provide for and how much you want to leave them. You may want to continue providing a safety net for your partner or spouse and there may be grandchildren to think about, not to mention funeral bills and other end-of-life costs.

As there are for the over-50s there are similar specialist policies you can take out from the age of 60. Medical assessments tend to be minimal or non-existent but, again, the premiums will almost certainly be higher than if you continue with a policy you took out when you were younger.

Just as your purposes may change over the years, so might the amount of cover you need. Whatever alterations you make and provisions you add, it’s a good idea to keep your level of cover under regular review. With a long-term product like life insurance, it’s easy to take out your policy then forget about it. To get the greatest benefit, you may find it better to pay attention to all the variables, including who you’re providing for and what the effects of inflation might be on the amount for which you’re insured.