Over-50s life insurance

Beware over-50s’ life insurance
Many waste a fortune so we’ve compared best buys

The warm and reassuring voiceovers in these advertisements make SunLife’s over-50s life insurance policy appear straightforward, but for many, it’s far from a good deal. Imagine buying a lottery ticket where the price is higher than the potential winnings—this is the risk many face with such policies. In this guide, I’ll break down how over-50s plans operate, the key things to be aware of, and highlight the top options if you choose to go ahead with one.

Aged 50+? We’ve masses of tips, tricks and help in our 50 Saving Tips for Over-50s guide.

How over-50s’ plans work

My usual approach is to prepare for any potential future situations, so you may be taken aback by how critical I’m about these policies. To begin, take a glance at the SunLife over-50s site. Its polished images and effortlessly appealing sales message are hard to miss.

• It provides a guaranteed lump sum payout upon your death, meaning there’s no investment risk involved, and you’ll always know the amount your loved ones will receive.
• If you’re between 50 and 85 years old, no medical exam is required, ensuring you qualify for a plan.
• Premiums start as low as £3.70 per month, with the payout amount determined by your age at the time of enrollment.
• Should you pass away within the first year, instead of the lump sum, your contributions would be fully refunded. However, if death results from an accident (such as a car accident), the full lump sum would be paid out.

It also highlights its suitability for funeral planning, helping to ease the persistent concern of becoming a burden to family and friends.

Four problems with the SunLife plan

Everything seems fantastic so far, which explains why these plans are so well-liked. However, as I’ve mentioned previously, there are significant gaps and dangers within these seemingly ‘straightforward’ policies. It’s not just SunLife that’s involved, but since it’s the primary provider, I’m highlighting it here.

1 – The maths doesn’t add up

I’d like to highlight two crucial clauses that, when combined, present an issue so harmful it demands immediate attention.

You must continue paying the premium throughout your life, or your policy will terminate, leaving you with nothing in return.

It’s possible to contribute more than the lump sum payout you will receive.

With this plan for individuals over 50, you’ll have to make payments for the rest of your life. There are no pauses or interruptions allowed, so stopping payments isn’t an option. However, the payout remains a fixed amount. The longer you live, the more you contribute, while the lump sum you receive stays unchanged.

Assessing these plans involves straightforward math, and most of the time, you won’t even need a calculator, so let’s break it down…

Although it’s impossible to predict with certainty, statistical averages can provide a useful estimate of the risk. The Office for National Statistics’ guide on How long will my pension need to last? offers valuable insight into this.

SunLife over-50s plan – how much it pays out

Correct as of November 2023.

Despite current savings rates, investing £10 monthly into a top cash ISA offering 5% tax-free returns would enable individuals who begin saving at age 65 to reach their payout goal nearly four years sooner.

Therefore, for many people, simply putting money in a top savings account each month is a better option.

2 – You’re locked in

These plans require a commitment.

Insurance schemes for those over 50 mean that once your money is invested, it’s non-refundable. A few years back, I created a documentary for BBC One’s Watchdog, featuring 84-year-old Mary Vickers. She held two SunLife policies with a total potential payout of £2,740, yet she had already contributed £3,700. To maintain her coverage, she needed to continue paying £22 monthly for the rest of her life, as any attempt to cancel would result in losing all previous contributions and receiving no payout.

3 – Miss a payment and you get nowt

If you miss a payment, you get nothing.

SunLife used to have a strict policy stating that missing a payment meant you wouldn’t receive anything.

I’ve heard from many people affected by this, like one woman who reached out on Twitter saying, “HELP! My mum passed away two weeks ago and had a policy with Axa. The last payment was missed because she was unwell, and now they’re refusing to pay.” Fortunately, stepped in (see Axa pays up after Twitter appeal) and was able to secure the full payout, but many others weren’t as lucky.

Now, if you miss a payment, you typically have up to six months to catch up on the missed premiums, and the policy will remain active. However, if you pass away after missing a payment, no payout is made.

To avoid this, it’s a good idea to set up a direct debit if you have a policy or are planning to get one.

4 – Inflation

The amount you receive may seem sufficient initially, but its value diminishes over time due to inflation. What might appear to be a considerable sum at first could end up being insufficient, potentially even falling short of covering a funeral plan.

SunLife recognizes this, which is why some of their customers have been contacted over the years with suggestions to increase their payout by enrolling in additional plans. While not many insurers offer policies that adjust for inflation, some do provide inflation-linked plans (check best buys), where the final payout fluctuates with inflation, but your contributions also increase.

For instance, Sainsbury’s Bank, in partnership with Legal & General, offers an inflation-linked plan where the lump sum payout grows annually, in line with the retail prices index (RPI).

However, the monthly payments will also rise, calculated as RPI multiplied by 1.5. So, if you’re paying £10 per month and RPI is 3%, your payment will rise to £10.45 the next year, and could reach nearly £15 per month by the tenth year.

Given that inflation has been high recently, with RPI at 6.10% in October 2023, a £10 monthly payment would rise to £10.85 per month.

Poor health? These plans can be lucrative

If your health is poor, over-50s’ plans can be a profitable option.

While I’ve highlighted the drawbacks of these policies, it’s important to note that they’re not necessarily bad for everyone. If you fully understand the details and have considered the risks, there’s potential for these plans to work in your favor.

To put it simply: if your life expectancy is shorter than average, these plans can be financially rewarding. For instance, if you’ve been diagnosed with a medical condition, are a heavy smoker, or significantly overweight, these plans can be a smart choice since no medical exam is required, even though your life expectancy is reduced.

Take, for example, a 65-year-old non-smoker with poor health, expected to live until 70. They could opt for SunLife’s £74 per month plan, which would pay out £14,039, having only contributed £4,440. This results in a gain of over £10,000. If they pass away during the third year, they would receive over five times what they’ve paid in. That’s a substantial return.

So, if this scenario suits you, keep reading.

I’ve got a plan. Should I cancel?

For those of you reading this with frustration, wondering, “Should I stop my payments?”, the answer is not straightforward. If you cease payments now, you’ll forfeit all the contributions you’ve made so far.

From a purely rational perspective, it’s best to disregard the past payments. Recalculate as though you were starting today and determine if your future contributions will exceed the eventual payout. Naturally, the longer you’ve been paying in, the less beneficial it may be to cancel.

Are standard funeral plans any better?

While over-50s’ plans may not be suitable for everyone, I wouldn’t want to deter anyone from making provisions to help ease the financial burden on their loved ones when they’re no longer around.

An alternative option is a traditional funeral plan, where you prepay for your funeral at today’s rates. However, these too can have drawbacks. For instance, a plan might fully cover cremation costs but only partially cover burial expenses and exclude services like a church ceremony (refer to our Death Happens: Plan For It guide). Additionally, it’s important to inquire about what happens to your funds if you pass away abroad or if the funeral provider goes bankrupt.

A simpler option could be setting aside funds in a high-interest savings account or a tax-free cash ISA (for up-to-date rates, see our Top Cash ISA and Top Savings guides). But even this approach has its risks – if you pass away unexpectedly early, you may not have saved enough to cover the full cost of a funeral.

Over-50s’ plans: The best buys

SunLife holds the top position in the market for these types of plans but is far from being the most competitive in terms of cost or conditions. Most of the major plans involve monthly payments, provide a lump-sum payout, and don’t require a medical examination.

Since there isn’t a single best provider – as it depends on your age and how much you contribute – we recommend following three steps to find the right policy.

Best buys: Over-50s’ plans compared

Step 1. Get quotes from these insurers

We gathered sample quotes from various insurance companies, and these options provided the best payouts for the most affordable monthly premiums. They’re a great starting point. Most require only minimal details, so you can get a quote from each in just a few minutes. Some links lead to comparison websites, which can assist in evaluating different policies.

Over-50s ‘fixed payout’ insurance plans (non-smoker, aged 65)

(i) Immediate if accidental death. (ii) Inflation-linked accounts increase (or decrease) with inflation.｜Correct as of November 2023.

Step 2. Check to see if a comparison site is cheaper

After obtaining your benchmark quotes from the insurers mentioned above, it’s worth comparing them to Howden Life & Health* (if you haven’t already) to see if a better deal is available.

By using our link, you’ll receive £85 cashback if you purchase a policy, which may offer more value than buying directly. Just ensure the policy terms match exactly, as some insurers provide lower payouts when purchased through a comparison site.

Once you’ve bought a policy, the cashback will be automatically deposited into your bank account after your sixth monthly payment. However, it’s limited to one policyholder per household. Keep in mind this offer is in addition to any promotions available on the Howden Life & Health website.

Step 3. See if you can get cashback on top of the cheapest quote

Once you’ve found your lowest quote (whether directly or through Howden Life & Health), check if the insurer offers any cashback deals. Also, if your second and third lowest quotes are close in price, see if cashback is available for those as well to determine the best option.

Our Top Cashback Sites guide provides complete details on where to look, but here’s a quick rundown…

• Always verify that the insurance quote from a cashback site matches or beats the one from a comparison site, as prices can differ.
• Cashback isn’t always 100% guaranteed due to potential issues with tracking or payment allocation – it’s wise to clear your device’s cookies before visiting a cashback site.
• Funds in your cashback account aren’t protected if the company fails, so withdraw your money as soon as you can.

How to complain about your insurance provider

The insurance sector is often criticized for its poor customer service, and while one provider might work well for some people, it can be a nightmare for others. Frequent issues include delayed or denied claims, unexpected fees, or exclusions buried in the fine print. It’s always a good idea to contact your provider directly first, but if that doesn’t work…

You can turn to the free complaints service, Resolver. This tool assists you in handling your complaint, and if the company doesn’t cooperate, it helps escalate the matter to the free Financial Ombudsman Service.