Do over 50’s life insurance plans offer value for money?

Avoid over-50s life insurance schemes that offer fixed payouts. They are very bad value.

Mature female freelancer working at laptop at home

If you watch afternoon television you will see adverts for over-50s life insurance, with no medical and guaranteed acceptance , often promoted by a celebrity.

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Beware. These plans are very bad value.

If you live an average length of time you will pay in far more than your loved ones get when you die.

They would normally do better if you put the monthly premiums into a savings account.

As an example, Madeleine, 60, buys over-50s life insurance from a well-known firm.

She can afford £10 a month and is delighted to be told that will buy a fixed payout of £2,164 when she dies. Her premiums are fixed, so by the time she is 78 she will have paid in as much as her relatives will get on her death. But the life expectancy of a 60-year old woman is 88.

So she will be paying into her policy for a further ten years. If she dies at the average age of 88 she will have paid in £3,360 and her relatives will still get the fixed amount of £2,164 – £1,196 less than she has paid in.

The longer she lives, the worse it gets. Madeleine has a one in four chance of reaching 96.

By then she will have paid in £4,320, almost double what her loved ones will get – still £2,164.

Some plans stop contributions at 90, others make you pay monthly until you die. If you miss a single payment – perhaps if you are ill or forgetful – the policy is cancelled. The insurer keeps all the money and your relatives get nothing.

Even if you die younger than average, your loved ones may lose. Plans don’t pay out for the first 12 months (sometimes 24 months) of the policy, unless you die in an accident.

The insurer just refunds the premiums – without interest. If you don’t have a policy, then just say no – unless you know that you will die young.

If you do have one, cancelling it will mean your premiums are lost and your loved ones will get nothing.

That may be worth doing in the earlier years of your plan.

For more information on life expectancy go to www.ons.gov.uk and search “pension last”, or use the tool below to calculate your life expectancy based on your age.

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