Pensioners can lose out on no-questions policies: Premiums on 'easy' life assurance can quickly outstrip the benefits

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The Independent Online
SUN LIFE, the insurance company, will next month launch a television advertising campaign to convince people over 50 to plan for their death.

The simple message is that monthly payments now will result in a guaranteed sum at death which can be left to the family or to help with funeral expenses. The policy asks no medical questions and is therefore attractive to elderly people who think they will not get life insurance elsewhere.

But Peter Love, whose father took out a similar policy, called Seniorplan, with Royal Life, believes these skilfully marketed products should be avoided because they can cost far more than they ever deliver.

'My father paid pounds 676 into a plan over 10 and a half years and my mother received pounds 366 when he died,' he says. 'There were no bonuses, no profits and a negligible cash- in value.

'After five and a half years he had put in more than he would ever get back. He was trapped, throwing good money after bad. His only income was his state pension. It seems so unfair he should have been giving it away to a multi-million pound company.'

On paper the policy must have looked good to the then 74-year-old Albert Love. He was offered life cover without a medical, fixed premiums, a month's free insurance and a free gift. He probably did not realise that the life expectancy of a 74-year-old man is eight years.

The policy offered cover of pounds 366 in exchange for payments of pounds 5.43 per month. During the first two years there would have been no payout if he had died of natural causes. His premiums would have been returned with 10 per cent interest.

'It turns out there were only three and a half years in those 10 and a half that he could have done better from the company than the company did from him,' his son says. Royal Life told Mr Love: 'While the benefits are relatively low in comparison to the premiums paid, this must be considered in the context of the level of risk we undertake.

'We guarantee to accept all applicants between the ages of 50 and 80 irrespective of their health or medical history, thereby providing cover for people who cannot otherwise secure it. It is inevitable in any kind of risk pooling that those who survive longer will subsidise those who die in the early years of the contract.'

Almost 78,000 of these policies are still in force, although they are no longer sold.

One adviser, Peter Bond, who runs Independent Financial Services in Luton, is sceptical about this type of policy. He says: 'Anyone can see he'd have been better off putting his pounds 5 a week in National Savings or spending it on himself. It's not good advice to tell an elderly person to buy life assurance. It's just too expensive.'

Norwich Union has been marketing a similar plan called Lifelong Plus by direct mail for three years. It takes people from 50 to 79 with no medical questions asked.

A 74-year-old man paying pounds 6.95 a month would receive cover of pounds 582. The break- even point is six years and nine months.

The pay-out for accidental death before 85 is double the agreed cover. If you die naturally in the first two years, you receive one and a half times your premiums back.

Sun Life Guaranteed Over-50 Plan comes with a month's free insurance, a clock radio or kettle and no medical questions. The deal is the same. Regular payment for 50- to 79-year-olds in exchange for a fixed payout. These policies have been sold for 10 years and there are now more than 200,000 in force.

'You can stop your cover at any time. It's entirely your choice,' the leaflet says. But no cash-in values are included in the documentation. In fact, there is no surrender value before five years and after that they are very low.

Those who die naturally in the first two years receive back one and a half times their premiums. A 75-year-old man paying premiums of pounds 6 a month receives cover of pounds 375. The break-even point is five years and two months. The deal is better for higher payments. The break-even point for pounds 30 a month guaranteeing pounds 2,625 is seven years and three months.

A Sun Life spokesman said: 'The mathematics are there for all to see and we are in no way ashamed of them. These plans are very popular because people don't like answering medical questions. They don't like the idea that they could be turned down.'

He explained that Sun Life's new plan which asks no questions is selling far better than the old version which offered better terms and required a health check-up. He admitted that anyone prepared to apply for a more conventional life policy where medical questions had to be answered, including many 60- to 65-year-olds at present signing up for Sun Life's current plan, 'would obtain a better relationship between the premium and the guaranteed sum'.

A spokesman for Norwich Union said: 'One contract can never suit everyone. It may well be, if you're in fine health, that you would be better off answering the medical questions and getting improved terms.'

(Photograph omitted)