Over 50 Plans.
Whilst we wouldn’t agree with Which? if they imply that a cash ISA is better for pre-paying funeral plans, we certainly agree with them that over 50 plans aren’t ideal. The problem with an ISA is that it is subject to Inheritance Tax and Probate, so it won’t be availble when it is needed to pay for the funeral. But I don’t think that is what Which? is intending to say. Here is their story:
Over 50 plans* could leave pensioners thousands of pounds out of pocket, and the payout often falls well short of what they’d earn in a cash Isa, according to new research from Which?
The consumer champion found that on average, a 60-year-old man paying £15 a month into an over-50s plan for 30 years would earn a lump sum of just £2,980**. This compares to a cash Isa (4% AER) which would earn more than triple the amount over the same time (£10,313).
If a customer stops payments then they forfeit any payout or even the return of their premiums***. This means that they’re forced to keep paying money into the plan each month until they’re 90. For instance, a 60-year-old man with a monthly premium of £15 would pay a total of £5,400 by the time he reached 90. However, in some cases he could receive a payout of less than half that amount (£2,650). So the longer you live, the worse value over-50s plans become.
Even worse, if inflation was to follow the same patterns over the next 25 years as it has done over the past quarter of a century, by January 2037 the real value of a plan paying out £3,450 could be less than half this in today’s money.
Which? chief executive, Peter Vicary-Smith, says:
“For most people, over-50s plans are incredibly bad value. They’re inflexible and, for the majority of customers, they will pay out far less than you have paid in. For those that are looking to leave their family a cash sum, our advice is to steer well clear of these plans, and to put your money into a cash Isa instead.”
*Over 50 plans are intended for anyone aged 50 to 85 who doesn’t have a life insurance policy or provision for a payout when they die. They tend to be aimed at people who are less wealthy, who often find it difficult to meet the monthly premiums. Customers pay a monthly premium from the age they take out the policy until they die, or until the age of 90. In return, their family receives a payout of a fixed amount (determined at the outset) when they die, provided that they’ve contributed to the plan for at least one or two years, depending on the provider.
One advantage of over 50 plans is that no medical questions are asked. This could make them worth considering for customers with a serious medical condition who cannot take out conventional life insurance.
**Quotes obtained in October 2011
Over 50 Plans
PROVIDER LUMP SUM 4% CASH ISA OUTPERFORMS LUMP SUM BY YEAR
SHEPHERDS FRIENDLY £3,450 15
ENGAGE MUTUAL £3,366 14
FAMILY INVESTMENT £3,288 14
RIAS £3,281 14
SAGA £3,139 14
SUN LIFE DIRECT (AXA) £3,020 13
TESCO £2,942 13
AA £2,940 13
ASDA £2,890 13
LEGAL & GENERAL £2,879 13
SAINSBURY’S £2,879 13
SKIPTON BS £2,879 13
LV= £2,815 13
STANDARD LIFE £2,815 13
AVIVA £2,712 12
POST OFFICE £2,712 12
NATIONWIDE BS £2,650 12
average £2,980 13
***Based on providers’ terms and conditions and an online quote