Although over-50s plans are widely promoted as bringing peace of mind to those without life insurance, they are inflexible and often pay out far less than has been paid into them. Most people would be better off putting their money into a cash Isa instead.
How over-50s plans work
Over-50s plans are insurance policies designed to pay a pot of cash to a customer’s estate when he or she dies. They are intended for anyone aged 50 to 85 who does not have a life insurance policy or other provision for a final payout on their death.
You typically pay a monthly premium from the age you take out the policy until you die, or until the age of 90. In return, your loved ones receive a fixed amount when you die, provided that you’ve contributed to the plan for at least two years.
The Which? verdict on over-50s plans
Over-50s plans usually have lower monthly premiums than ordinary life insurance policies, which can be part of their appeal. But a Which? investigation has uncovered a number of serious drawbacks – not least the fact that they will pay out less than most people could have built up in a savings account over the same period of time.
For example, if a 60-year-old, non-smoking man started paying £15 a month into an over-50s plan, he would qualify for an average payout of £2,980 when he died. Yet if he had paid his £15 a month into a 4% cash Isa instead, he would have accrued that £2,980 within just 13 years. Given that the average life expectancy of a 60-year-old man is around 20 more years, it is likely that he will still be paying into his over-50s plan for several years after the point at which he would have built up more money in an Isa.
The longer he lives, the worse value his plan becomes. Worse still, if he stops paying into his plan at any stage (up until the age of 90), he will lose any future payout. As over-50s plan payouts are generally fixed at the time you take them out, the value of the payout is eroded by inflation. So while a payout of £2,980 might sound OK today, it won’t buy you nearly as much in 20 or 30 years.
For most people, these plans are incredibly bad value. They’re inflexible and they will often pay out far less than has been paid into them. For people who are younger and in relatively good health, life insurance may be a better option.
The FSA needs to take a closer look at the way over-50s plans are marketed and sold. Many firms use the allure of free gifts and the faces of trusted celebrities to sell these products, but fail to explain their limitations.
Watchdog not lapdog campaign
We believe that the financial regulator should be responsible for putting a stop to poor-quality financial products, which is why we’re launching our new ‘Watchdog not Lapdog’ campaign.
At the start of next year, the current regulator, the Financial Services Authority (FSA), will split into two new authorities:
- The Financial Conduct Authority (FCA), which will have responsibility for protecting consumers
- The Prudential Regulation Authority (PRA), which will focus on maintaining financial stability
We want to ensure that the FCA puts consumer protection at the heart of everything it does – and make sure it becomes a watchdog that keeps the financial services industry in check, not a lapdog that panders to it.
- The Which? Money Helpline – we’ll help if you have any queries about financial products and services
- The Watchdog not Lapdog campaign – we explain what our new campaign is trying to achieve
- Support our campaign – sign up to the Watchdog not Lapdog campaign to call for greater consumer protection