Call for better safety features for those facing financial difficulties.
Over-50s life insurers are guilty of ‘abandoning’ struggling policyholders who run into financial difficulties.
That’s the verdict of a damning report from Royal London, which shines a light on failings in the market.
The study found nearly a third of people (28%) who buy an over-50s life insurance policy cancel their plan, losing out on the cash lump sum and any premiums already paid.
It estimated 52,000 people cancelled policies in 2014, which collectively were worth £173 million in cover. This equated to around £86 million in premiums already paid, which the insurers could simply pocket as profit.
Royal London said the rate and extent of cancellations is down to unfair and inflexible products that lack safety features to help those in financial difficulty, and urged providers to act now to reform the market.
What’s going wrong?
With an over-50s life insurance plan you pay a premium each month so that when you die your family get a lump sum pay out.
The benefit of these plans over a regular life insurance policy is you don’t need a medical screening to qualify, so it’s good for over 50s in less than perfect health.
[SPOTLIGHT]So why do such large swathes of people end up ditching these policies?
According to Royal London's report, many policyholders who back out of their over-50s life cover are financially vulnerable, with a fifth saying they cancelled their policy due to long-term money issues.
The report found two in five people (40%) cancelled either because they couldn’t afford their premiums anymore or because they needed to prioritise other bills instead.
However, while a quarter of customers felt a strong sense of relief after cancelling, a significant number (18%) felt regretful or sad, while one in ten felt worried, confused or nervous afterwards.
Taking action to reform the market
Royal London said its study underlines what many industry commentators have said for some time: over-50s life insurance policies offer appalling value.
It accused the industry of offering "poorly designed products" set up so that policyholders in financial difficulty lose everything if they cancel or miss a payment, even after paying premiums for years.
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Tips for taking out an over-50s plan
Not all over-50s life insurance policies are the same, so you should shop around and take time to consider product features.
Here are five questions Royal London recommend asking when taking out a policy to prevent getting caught out.
1. How flexible are the payment terms? For example: does the insurer allow you to reduce your premiums? Flexible payment terms could be advantageous if you experience financial problems in the future.
2. Does the policy offer you any sort of payout if you stop paying premiums mid-way through? Knowing whether your cover will be lost or protected if you cancel can bring peace of mind.
3. How quickly does the provider cancel your cover if you miss one payment? Be aware of how long you’ll have to catch up on any missed payments – providers’ terms will differ.
4. How soon after your policy begins would it pay out in the event of your death? Know whether the provider would pay out after the first or second year of policy.
5. How long does the provider make you pay for? A shorter payment period (up to ‘age of 90’ instead of ‘forever’) could save you money in the long-term.
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More on over 50s products:
Car insurance for the over 50s
Life insurance for the over 50s