Here’s another money-saver. Be sure to tell your parents and grandparents. There are loads of adverts on TV these days for ‘Over 50s Life Insurance’. These policies tend to be taken out by well-meaning old-folk to pay for funerals. They’ve been pushed on TV by well-loved household-name celebrities like Michael Parkinson and the late June Whitfield, but I really wish people like that would think a bit more about their reputation and how they use it. Surely, they can’t be so hard-up that they have to help sell junk to the old folk? Usually there’s a ‘sweetener’ on offer like a free Parker pen. Big deal!
HOW THEY WORK
Unlike traditional life insurance policies, cover is not offered based on the state of your health. That’s the hook. They promise to pay out when you die so long as you don’t die in the first two years usually, give or take six months. So, the big benefit is that you don’t need to have a medical to get one and you can get one no matter how unhealthy you are, provided you’re between 49 and 85. However because they are available to everyone regardless of health, those who are particularly fit and healthy pay over the odds. Several insurers offer over-50s plans, but Axa SunLife is the most well-known.
VALUE FOR MONEY?
The major flaw with over-50s plans is that they are poor value for money compared with ‘traditional’ life assurance. We’ve come across many older people who’ve paid a lot more in than the policy will ever pay out. The plans only pay out on death and have no cash-in value. As a rough guide, if you paid Sun Life £67 per month their plan would pay out £16,290 on death. By comparison, a healthy 60-year could buy £150,000 worth of cover over a 15-year term – more than nine times as much – for the same money.
DO YOU REALLY NEED ONE?
In reality, most people leave behind at least some cash when they die, and very often a house that can be sold to pay funeral costs. If the deceased has enough money in the bank then their bank will usually release money early from an estate to pay for funeral costs if friends or relatives can provide a copy of the death certificate and an itemised account from a funeral director. If they only had their house then the bank will usually offer a probate loan to tide the executors over until the house is sold. Probate loans are good business for the banks.
WHO DOES NEED LIFE COVER?
Many people need it, especially if they’ve a mortgage and young children. Life assurance is very useful and I’ve never yet met a widow who thought her husband had too much life cover. But no ethical financial advisor would sell life assurance to somebody who doesn’t need it. You need it if you have a family that needs providing for and/or debts that need paying, especially a mortgage. Nobody wants their family to be made homeless if the breadwinner dies. Once the mortgage is paid off though and the kids have grown up, most people have little or no need for life cover. From that point on for most people it falls into the bracket of “nice to have but not essential.”
If you’re concerned about paying for your funeral, you could always pay for it in advance with a prepaid funeral plan. These plans typically work with you pre-paying for your funeral, either in instalments or a lump sum, so when you die everything is taken care of and the amount you pay depends on what is included within the plan. Or you could simply save your cash in a deposit account or cash ISA, or a stocks-and-shares ISA if you’re more investment-minded. Just ask our advice.
WHAT THE REGULATOR SAYS
If you buy life assurance that’s sold direct like this, and it’s not suitable for you, you have no come-back. You can’t complain to the Financial Ombudsman Service that it was mis-sold because advice is NOT part of the process. The law says that the company did not mis-sell it, it says that you mis-bought it – caveat emptor. Advisors however are regulated and duty-bound to only sell you a policy you need and to research the market and recommend the most appropriate type of cover. You have more protection.
It’s always sad when we see old folk going short on the things that would make their lives more liveable to pay for policies they probably don’t need. If your parents think they need to buy a policy like this, have a talk with them about whether they really need it. If, like most people, you do stand to inherit at least some cash or assets that can pay for the funeral, the chances are that over-50s life cover is a waste of money.
Okay, if you don’t buy one of these policies you’ll miss out on the ‘free’ Parker pen or whatever, but if you really want a pen that badly, stop by our office and we’ll give you one that really is free!