Death to over-50s life plans!

Over-50s life plans are promoted as a great way to save for your funeral. In reality, they are anything but.

Life begins at 40, they say (not very convincingly). So what begins at 50? Death, apparently. Or so the people marketing over-50s life plans seem to think.

An over-50s life plan is a low-cost form of life insurance that is primarily designed to help people pay for their funeral. I turn 46 this year, so will I be looking to buy one of these plans in 2016?

No, no, no and NO.

And you probably shouldn’t either.

Over-sold life plans

It’s not that I consider myself immortal. But it seems rather morbid to start saving for your death when it could be at least three decades away. And in the case of over-50s plans, financial madness.

Over-50s life plans are endorsed by trusted TV celebrities such as Michael Parkinson and Gloria Hunniford, and other stars of TV Gold, including Frank Windsor and June Whitfield.

They are big business. The market leader, Sun Life Direct, owned by insurer Axa and promoted by Parky, has sold more than 700,000 plans.

A host of household names also offer them, including the AA, Asda, Legal & General, LV=, Nationwide, the Post Office, Saga, Standard Life and Tesco.

But that’s still no reason to part with your money.

Consumer champion Which? recently gave these plans a sound beating. So what exactly is wrong with them?

A lousy way to save

Over-50s plans are aimed at people aged between 50 and 80. You pay a fixed premium ranging from £5 to £50 every month until you die, or turn 90. At that age, your premiums typically stop, but cover continues until death.

These plans are mostly bought by people on low incomes who want to leave a little behind to pay for their funeral or treat their loved ones to a small cash sum.

Unfortunately, they’re “incredibly bad value”, according to Which? chief executive Peter Vicary-Smith. If you want to leave your family something, it would make much more sense to put the money into a cash ISA instead, he says.

Triple whammy

A 60-year old man who pays £15 a month into an over-50s plan for 30 years would get a guaranteed lump sum of around £3,000. If he paid £15 a month into a tax-free cash ISA giving an average return of 4% a year over 30 years, he would collect £10,313 - more than triple the amount.

If he stopped paying his premiums into that over-50s plan at any point, he would lose his right to any payout. He might as well have chucked his money in the bin.

A 40-year commitment

If you are crazy enough to take out an over-50s plan at 50 and healthy enough to live until 90, you will pay your premiums for an astonishing 40 years.

If you took out a plan age 60 and paid £15 a month for 30 years until age 90, you would shell out £5,400 in total. Yet some plans would pay you just £2,650, roughly half that amount.

So you get back a lot less than you put in. Inflation will also dramatically erode the value of that payout.

Over-50s life plans may be lucrative for Parky and the gang, but they won’t make your loved ones rich.

OK, they’re not all bad

And yet... over-50s plans do work for some. The big attraction is that everybody is guaranteed to be accepted for cover. You don’t have to answer any medical or health questions, as you do with standard life insurance.

This makes them attractive to those in bad health or with an unhealthy lifestyle, who would face sky-high premiums for term life assurance (if they can get cover at all). With an over-50s plan, you pay exactly the same premium as healthy people.

To deter people from taking out an over-50s plan knowing they will die shortly, insurers won’t give you the full payout if you die within 12 or 24 months of taking out the plan (unless it’s an accident). But you will get your premiums back.

Over-70s plans

If you’re fit, healthy and in your 50s or 60s, you can safely ignore these plans. If you already expect to leave money behind when you die, you can also ignore them.

But if you’ve got no savings, your health is declining, you’re in your 70s and you don’t want to lumber your loved ones with the cost of your funeral, these plans could make sense.

So make sure you know exactly what you are buying. You might also ask yourself whether those TV celebrities understand exactly what they are selling.

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