The gamble of insurance cover
Long-term plans make over-50s life insurance a gamble not worth taking, says Paul Lewis
Celebrities who really should know better often pop up on daytime TV to advertise life insurance for people over 50. This is poor value and most people end up paying more in premiums than what their family will get when they die.
Around one in ten people will pay twice what the insurer will pay out. No medical is needed for these over-50s plans and premiums are fixed. But like most gambles – and insurance is, simply, a gamble – the odds favour the house.
One popular and heavily advertised firm charges a 66-year-old £20 a month and promises them £3,712 on their death. After 15 years and six months they will be 81½ and will have paid £3,720 in premiums, which is £8 more than the policy will pay out on their death. Every month they live after that another £20 will go to the insurer, but the benefit stays the same.
The Office for National Statistics says a man of 66 can expect to live to 85. Typically, he’ll pay £20 a month for 3½ years for nothing – that is £848 more than the £3,712 his heirs will get. Women live longer than men; a 66-year-old can expect to live until she is 87. So in her case, she will pay premiums for 5½ years after she has paid the £3,712 her family will get when she dies – and waste £1,328.
Those are just averages; half of us will live longer. A 66-year-old man has a one in four chance of living to 92, by which time he’ll have paid £2,528 more than the £3,712 his family will get. A 66-year-old woman has a one in ten chance of dying at 98. Her family will get £3,712 and she’ll have paid more than double that – £7,680.
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You can give up the plan, of course, but all the premiums are lost and your family will get nothing. If you have paid into one for only a short time, it may be worth
cancelling it. If you are a heavy smoker or have a medical condition that will reduce your life expectancy, these plans may be worthwhile. But remember: you are
gambling against professionals.
Paul Lewis presents Money Box on Radio 4