Is Life Insurance for the Over 50’s Such a Good Deal?

Here’s an easy one. What have June Whitfield, Frank Windsor, Gloria Hunniford and Sir Michael Parkinson all got in common?

You guessed it, these TV celebs have all advertised over-50s life policies. Their trusted faces, familiar from the box, presumably give older people the reassurance they need to splash out on these policies.

Over-50s life insurance plans offer guaranteed cover for a low monthly premium. Axa Sun Life, Engage Mutual, Liverpool Victoria, Marks & Spencer and the Post Office all sell these plans, which have been a tranquil backwater of financial services for what seems like forever.

War Breaks Out

Then suddenly supermarket giants Asda and Tesco start offering them and war breaks out.

Asda Financial Services launched its Over 50s Life Cover policy in mid-May, with Tesco Life Insurance diving in just a couple of days later. Within days, their competitive instincts had spilled into the genteel world of the over-50 life policy – and a good thing too, as it turns out.

To understand the dispute, you first have to understand how this niche of the life insurance market works.

The main attraction of over-50s life policies is that if you are aged between 50 and 75, you are guaranteed to be accepted onto the policy. Unlike traditional term assurance, you don’t have to complete a lengthy questionnaire or take a medical before you get cover.

This makes them attractive to people who are in poor health or have suffered a serious illness, who face sky-high premiums for term assurance — if they can get cover at all.

Over-50s plans are whole-of-life policies, designed to last for as long as you do. Like term assurance, they have no cash-in value. If you cancel your policy or stop paying your premiums, you’re no longer covered, and your premiums won’t be returned.

People mostly take out these plans to cover the cost of their funeral, which Asda research shows now averages £2,620 for a burial and £2,260 for a cremation. Or the policy may be used to leave a small cash sum for their loved ones.

And believe me, it will be a small cash sum. Tesco gives a 50-year old man paying £10 a month life cover worth £3,171. At age 65, his £10 monthly premium would buy just £1,351.

Why is the payout so low?

Largely because the plans cover anybody who wants one, regardless of their state of health. So if you’re healthy, you’re paying more to fund the extra risk of covering all those unhealthy people tempted by these plans.

But watch out, many of these policies contain the mother of all catches — and this is the nub of the spat between Asda and Tesco.

If you live long enough, you could actually pay more in premiums than the policy returns when you die. So if our 50-year old man paying £10 a month to Tesco lives until 77 his premiums would total £3,240 — £69 more than the £3,171 payout.

If he lives until 90, he will pay out £4,800, or £1,629 more than he receives. At that point, Tesco finally stops taking his monthly premiums, while continuing his cover until death.

And that’s what Asda is kicking up a fuss about. Its plan guarantees customers who maintain their premiums will never pay in more than they get out, says Head of Insurance Gideon Ingham. “We are asking Tesco to review its offering and introduce a cap.”

I’ve called this a spat, but it’s more like a one-way public assault from Asda. I asked Tesco to respond to its criticism, and its spokesperson said they had “nothing to add”. But at least Asda has highlighted the serious flaw in many of these plans, and hopefully people will take note.

Do you really want an over-50s policy at all?

You might, if you’ve been ill, can’t afford standard term assurance, haven’t got any savings and are fretting about who is going to pay for your funeral.

Tesco says its target market is “those customers with fewer assets and savings”, who are buying peace of mind. But that’s also a vulnerable market, who are unlikely to take financial advice to examine all their options.

If you’re in reasonable health, term assurance is almost certainly a much better deal, particularly if you have a big debt to cover such as a mortgage. Direct Line would charge a healthy 50-year old non-smoking man £30.53 a month for £100,000 worth of level cover to age 65. His premium with Direct Line is 200% higher than the £10 he would pay Tesco for £3,171 cover, but his payout is a whopping 3053% higher.

(That said, the term insurance’s cover will expire at the end of the term whereas the over-50 policy will continue to provide cover until death — as long as the premiums continue to be paid.)

So over-50s policies aren’t always inappropriate, they still have a place for people who can’t get or afford term assurance. The older — and unhealthier — you are, the better value they represent. But, in my view, most people should look to term assurance.

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