Protection matters

One of the most frequently asked questions in financial planning for the over 50s market is, why would anyone need protection at a time when they usually have fewer debts and their children are less dependent? The appropriateness of any protection products and services will depend entirely on the individual or family circumstances, their financial situation and aspirations for the future. It may seem the requirement for protection is greatly reduced once clients become older, but the reality of the situation is somewhat different and protection products and services can be seen as an important tool in financial planning for this age group.

We asked our customers what they thought their priorities would be for the future. The results were not entirely surprising and fell broadly into two customer groups: those who had not yet retired and those who had retired. Those customers who had not yet retired considered protection benefits most important. Inheritance tax (IHT) planning was deemed to be important by all age groups.

Changing lifestyle

While our circumstances change over time one of the greatest life changes we will ever experience is that of retirement. Not only will daily activities change, but also some people may experience a significant reduction in income and a loss of benefits from their previous employer. People will generally be dependent upon receiving a sufficient level of income from their pensions and investments. For most of us our mortgages will be repaid and our children will no longer be dependent upon us. Protection for dependents and to cover outstanding debts becomes less important and priorities change.

A major concern for many people will be inheritance tax and the effect it will have on their estates and dependents. The significant increase in the value of property in recent times has left many people with properties whose value is in excess of the inheritance tax threshold of £242,000. On death the value of any estate in excess of this threshold would be taxable, so it is highly likely that a tax charge could arise on death.

IHT planning is an extremely complex area so clients will undoubtedly have to seek professional advice before making any decisions. Every person's circumstances are unique to them and quality financial planning takes those individual circumstances into account to give tailored advice.

Everyone who believes they could be subject to IHT needs to plan ahead and this should include the use of gifts, wills and trusts as well as life assurance.

Planning ahead

If you use gifts in excess of the £3,000 annual exemption, then there still could be a liability should the donor die within a seven-year period. By planning ahead this could be mitigated by a seven-year term policy covering the tax liability. However, if the main priority was to leave the estate intact and provide a lump sum to cover the liability, then you could utilise a whole of life policy to cover the liability which would be written under trust for the person liable to pay the bill.

So why is protection such an important issue to discuss with clients in the over 50s age group? The simple answer is because today, even as we reach retirement age, few of us are entirely self-sufficient. Most of us rely on at least one other person, particularly within our families, to preserve the lifestyles that we establish for ourselves.

If we buy the right insurances and create a sound safety net beneath ourselves and our loved ones we can at least hope to be able to cope with the trials and tribulations that life throws our way. If clients do not take these precautions then the dividing line between maintaining a comfortable lifestyle and struggling to make ends meet may prove to be disconcertingly thin.