When it comes to over 50 life insurance Martin Lewis doesn’t mince his words. It’s fair to say that the renowned ‘moneysavingexpert’ is rather scathing but it is worth pointing out that like other comparison companies such as Moneysupermarket, Go Compare and Confused.com, Mr Lewis does still sell this type of guaranteed acceptance plan on his website.
So why is Martin Lewis so troubled by over 50 life insurance and does he make a valid point?
What is an over 50 plan?
An over 50 plan is a whole of life insurance policy that pays out a cash sum when you die that families very often use to help with funeral costs; which is why they are also frequently labelled ‘funeral insurance Cover’ plans.
You are guaranteed to be accepted as long as you live in the UK and are within the age range of 50 to 85** with no health or lifestyle questions asked.
You pay a monthly premium you are comfortable with either for life or until you are 90* and covered for the full cash sum after one or two years*.
It’s not a lottery – it’s insurance
Martin Lewis’ guide to over 50 plans begins with an analogy; his point being that ‘you wouldn’t buy a lottery ticket if it cost more than the jackpot, so why buy an over 50 plan’ suggesting that this is exactly the risk people face.
Whilst he is right in saying that depending on how long you live, there is a chance you could pay more in monthly premiums than the cash sum paid out, his analogy is a little misleading.
People buy insurance plans all the time; travel insurance, home and car insurance, pet insurance, the list is endless. With many of these insurance plans, even though you dutifully pay your monthly premiums, you may never have to make a claim; therefore you may never get penny back.
An over 50 plan is an insurance plan – there to cover a risk. At least with this type of insurance you know that money will be paid out when you die, which can’t be said for other types of cover.
The maths is clear and easy to do
Really this point links back to Martin Lewis’ first issue that as you pay into the plan either for life or until you are 90*, there is a chance you may pay more into the plan than the cash sum paid out.
As we have already said, this is true however on the flip side, the plan pays out after the first 1 or 2 years*, so equally, you may die after 3 years having only made 36 monthly payments but the full cash sum would be paid out regardless.
Because of this, Martin Lewis complains that the maths doesn’t add up, but actually the maths is very clear. Both the amount you pay on a monthly basis and the cash sum paid out are fixed, so all you need to do is divide the latter by your monthly premium and this will give you the so called ‘cross over’ point at which you start to pay more.
For example your monthly premium is £10 and you get £3,000 worth of cover:
£3,000 divided by £10 = 300 months
Therefore after 300 months which is basically 25 years, you will start to pay more into the plan than the cash sum paid out.
So before you think about buying an over 50s plan, just do the maths and see for yourself if you think it is worth it.
You need to be aware of the terms and conditions
In his rant about over50lifeinsurance Martin Lewis also advises that once you start paying for the plan you are ‘locked in’ and if you miss a payment you get nothing back.
In reality both points amount to the same thing, when you buy a plan you commit to pay the monthly premium for a specified period, usually either for life or until you are 90. If you cancel the plan (after your initial cooling off period) or miss any payments, the cover ceases and you won’t get a penny back.
Therefore you need to ensure you are completely happy with these terms and conditions and ensure you are comfortable with your chosen monthly premium.
Looking to the future
Another valid point about the guaranteed over 50 plan is that the monthly premium and cash sum paid out are fixed, so inflation will reduce the covers value over time. Whilst a fixed monthly premium may be helpful with regards budgeting, when choosing your level of cover it is worth thinking about inflation and what the value of the cash sum will be in years to come.
As Martin says you can get plans that increase in line with inflation on an annual basis but this also means your monthly premium will go up, which may not be suitable for everyone.
On a positive note
The moneysavingexpert does end on a more positive note, stating that an over fifty life insurance plan could be beneficial for people who are not in good health or those who feel they have a shorter life expectancy – but this is the whole point.
An over fifty plan gives people choices. If you are looking for a simple life insurance plan that will cover you regardless of your lifestyle or the state of your health, then this could be the plan for you.
If however you happy to go through a longer application process that includes medical questions, then in the first instance you may want to consider regular life insurance, as the cash sum paid out could be higher.
At the end of the day its down to personal circumstances, preference and going into it with your eyes open, aware of all the facts – which should always be the case when buying any type of financial product.
*depends on the plan provider
**upper age threshold varies from 75 to 85 again depending on the plan provider