Over 50s plans that disappoint...
AXA Sun Life, Sainsbury's and Liverpool Victoria are just some of the many plans offering special insurance policies aimed at the over 50s. As long as you pay a monthly fee, they promise a fixed lump sum payable on your death. These plans are aimed at covering funeral costs, and more than 2.3 million people have them, but Watchdog has found that that they could prove very costly. Martin Lewis reports.
Policies like these may sound good - no medical checks before you sign up, and a guaranteed pay out even if you die just a year or two later, but you really have to examine the small print as you could pay more than paid out on death.
If you sign up for these type of policies, you may end up paying more in than it ever pays out. That's because with Over 50's plans, the amount it pays out is fixed, so the longer you live, the more you pay in.
James Daley, Money Editor of Which?, explains that people are living longer but unfortunately if you do end up living into your nineties and you have got one of these plans 'they are going to turn out to be incredibly bad value'.
Some plans do take inflation into account and it's important to understand that once you have paid the money in, like an insurance policy, you can't get it back. In most cases regardless of whether you have paid in the value of your lump sum they will continue to take the payments until your 90. Three companies will make you pay even beyond that, including the market leader in Over 50s plans, AXA Sun Life.
AXA Sunlife's over-50s ad campaign - fronted by Sir Michael Parkinson - has been hugely successful with nearly 790,000 people signing up.
84-year-old Mary Vickers took out two AXA Sun Life policies with a combined total planned payout of £2738. When her daughter went through the paperwork she discovered Mary had already paid in £3,727 and that she'll have to keep on contributing £22 a month - until the day she dies. Policy holders like Mary would have ended up with far more had they just put the cash in a savings account.
June Tapping's parents took out their first plan in 1987, but as its value dwindled, they decided to top it up with a second. AXA Sun Life has encouraged them to do the same thing - again and again. They now have 10 plans and have paid in more than £10,500 even though all the lump sums add up to only £6384.
The message from Watchdog is, if you're tempted by one of these plans, do your sums first.
A spokesperson for Sun Life Direct said:
The peace of mind that comes from knowing there is money to help their families pay for funeral costs is important to our customers. An estimated 100,000 people* in the UK find it difficult to pay for a funeral, and plans like the Guaranteed Over 50 Plan are an affordable way for many people to help towards these costs. This is a simple insurance plan, not a savings plan, so the key thing it provides is certainty that a fixed lump sum will be available when it's needed.
In fact the majority of our customers pay in less than is paid out when they die, but we do know our customers understand that they may pay more in than they get out, because in research 9 out of 10** of our customers say we explain this well in our literature. Furthermore, 95%*** of our customers' loved ones we researched tell us they are very satisfied with Sun Life Direct when they have made a claim. Despite high levels of satisfaction, we are not complacent. All companies get complaints from time to time, and when there is a complaint, we take it seriously and work hard to resolve it to the satisfaction of our customers and their loved ones.
With regard to the customers being featured on BBC Watchdog, these are not now Sun Life Direct customers so we cannot respond directly to their comments. However, for balance, here is a representative sample of real statements which customers and their families have made to us:
"When my husband passed away and I needed to make a claim, I found [the company] to be absolutely wonderful. The cheque was with me in a few days and I was very grateful. I also have a Plan that my son can use to pay towards my funeral. However, when my husband died, I took out another Guaranteed Over 50 Plan because I thought if I do that, my family will have less to worry about when I'm gone." Mrs F, February 2012
"You've got to think ahead - and my family are pleased to know I'm getting things in order. You need to take responsibility for yourself. I chose a monthly premium I can easily afford. Now I can enjoy my books, music, films, and of course family, with peace of mind." Miss E, February 2012
"The Plan will probably be used to help pay for my funeral. I've got no savings so it will go some of the way to help towards it. I thought the pack was very straightforward and very clear. It explained everything to me...I feel better that there's something in place now." Mr R, June 2011
*Source: Total Cost of Dying Report 2011 (Sun Life Direct)
**Source: Continuous Research Programme Oct - Dec 2011 (Sun Life Direct)
***Source: Customer Satisfaction Research August 2011 - Jan 2012 (Sun Life Direct)
A spokesperson for ABI said:
Over 50's life insurance policies can provide a useful benefit for those who want the certainty of cover with no questions asked. The very nature of life assurance is to protect loved ones against the risk of your early death - but of course this also means that those who are fortunate to live longer than expected will pay more. Companies who provide these products must now comply with the requirement by the Financial Services Authority that they deal with customers in a way that is clear, fair, and not misleading. Getting the right life cover in place to protect your dependants is an important decision. With some policies you only pay premiums up to a specified age so it is sensible to shop around for the policy that suits you best.
A spokesperson for Friends Life said:
'We have received the details of the customers who have complained to Watchdog about the Over 50s plans they bought from Sun Life Direct. Friends Life now manages these policies following the purchase by Friends of part of AXA's UK life business at the end of 2010. While we cannot comment on individual cases, we take all customer complaints very seriously. We are currently investigating the issues raised and will respond direct to the customers.'
A spokesperson for Sainsbury's Bank said:
"We offer a range of good quality, competitively priced products designed to give our customers choice. The Sainsbury's Over 50s Plan particularly appeals to customers who may feel excluded from other policies because they don't want to have to go through a health assessment, or because they do not have many savings but still want a policy to give them and their families peace of mind. We know that these customers value the simplicity of the product."
"We are always clear with our customers about the policies we sell and are explicit that the Over 50s Plan is a life insurance policy rather than a savings account. It is impossible to predict when someone will die and it is therefore inevitable that some customers will pay more premiums than others. The promotional material for Sainsbury's Over 50s Plans includes a section called "Things you need to know" which draws customers attention to the impact of inflation on the lump sum that will be paid. We believe that the information in this section should help customers to shop around and work out which policy best suits their individual circumstances."
"We never encourage customers to take out more than one policy"
A spokesperson for LV said:
"Over 50s plans satisfy a clear need for those who can't afford to purchase a pre-paid funeral plan, don't want to go through any medical screening, and want peace of mind to know they will leave behind a specific amount of money for funeral expenses or unpaid bills."
A spokesperson for Tesco Bank said:
"Tesco Bank offers a range of life insurance products, including an 'Over 50s' plan. Our plan offers a guaranteed customer acceptance, without asking any medical questions.
The plan offers our customers assurance and peace of mind that their family will be protected from some financial worries when they are gone by leaving them with a cash lump sum. It is a protection product, which means its purpose is not to offer a return on an investment (as an ISA would do), but instead provide a guaranteed payment when the customer dies.
At Tesco Bank, we pride ourselves on transparency and strive to provide our customers with very clear and simple information about all of our products including the conditions that apply to them."