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Over-50s life cover a gamble with high stakes

A £30 payment towards winter fuel bills is the latest incentive being used to persuade older people to take out over-50s life cover.

These heavily-advertised life insurance policies are sold direct to the public, so customers decide for themselves whether to buy them or not.

But if they weren't, some insurance experts believe the companies responsible could be accused of mis-selling because of the poor value for money the plans offer.

The Post Office is offering customers money towards their fuel bills if they take out its over-50s policy, as well as persuading them with emotive language such as "guaranteeing loved ones a fixed lump sum".

Normally it is Michael Parkinson promoting Sun Life Direct's Guaranteed Over 50 Plan, which comes with a choice of gifts ranging from a Kindle to a £75 Argos gift card.

Insurers can afford to be generous. Many people pay far more in premiums for these policies than the fixed amounts paid out to their families when they die.

Independent financial adviser (IFA) Roland Oliver, from Musselburgh, said: "These over-50s plans are very lucrative for companies such as Sun Life Direct so it is profitable for them to employ Parkinson who is a trusted figure.

"Mis-selling is a difficult word. However, it is definitely 'ignorance selling'.

"People who take them out clearly don't understand their options. As an IFA, I wouldn't be able to get away with selling these policies unless there was a clear need, which would only be the case if someone was in very poor health."

Over-50s life plans are a type of 'whole of life' insurance. Premiums are fixed and a fixed cash sum is paid out on the policyholder's death. No medicals are required.

Kevin Carr, speaking on behalf of life insurance adviser Lifesearch, said: "People like the simplicity of these plans but with any product that has auto acceptance it means healthy people will pay too much.

"These policies are okay if you are in poor health, but if you are in good health you can get a better deal elsewhere."

Insurers protect themselves against people taking out policies when they are about to die by having a one or two year period until full cover starts.

Ben Heffer, protection specialist at financial researchers Defaqto, said: "The best case scenario for consumers is to die after two years. But if you are in poor health, you have nothing to lose from taking out one of these policies because if you do die before the two year moratorium the premiums are refunded."

However, for people in normal health the danger is that they will live too long and pay considerably more in premiums than the policy is worth.

The chances of this happening are high. The average life expectancy at age 65 is currently 85.6 for women and 83 for men. But what this means is that half of 65-year-olds will live beyond this age. The number surviving to 100 is growing steadily.

With many insurers, the potential overpayment is at least limited. Mr Heffer points out that most companies allow policyholders to stop paying premiums after age 90. This includes the Post Office's plan which is provided by Aviva. Aviva also underwrites Tesco's Guaranteed Lifelong Protection Plan.

When you get a quote from the Post Office, it also shows clearly how much you can potentially lose.

A 70-year-old paying £20 per month, for example, will be provided with a fixed lump sum of £2732. By the time he or she reaches 82, they will have paid more in premiums than the policy is worth. By age 90, at the end of the premium-paying term, they will have paid £4800.

What are the alternatives? One of the reasons people are encouraged to take out over-50s plans is to pay for funeral costs.

But by the time they die there is no guarantee the payouts will cover these costs.

Anyone concerned about funeral costs should consider a pre-paid funeral plan from a company such as Co-operative Funeralcare, which guarantees the funeral costs will be covered. These can be paid for in monthly instalments which start at £34 for a 70-year-old.

Those who want to pass on a nest egg to their children or grandchildren are advised to earmark a savings plan for this purpose.

Mr Oliver said: "It is not good practice to combine savings and life insurance as the over-50s plans suggest. I would advise using your ISA allowance if you want to build up a nest egg."

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