Life insurance terms: they’re tricky so consult a broker (Image: Getty)
The dilemma of getting through the cost of living crisis or having peace of mind there would be enough to meet her funeral expenses became too much for a widow and she pulled the plug on her insurance plan. “The premium was costing me £50 a month and I couldn’t do it anymore,” explains 89-year-old Doris Kennedy.
But her action had more consequences that she expected, not least because life insurance takes different forms and requires plenty of consideration before a decision, either to get it or cancel it, is made.
++ If you’ve been affected by this issue or feel you’ve been a victim of injustice, please contact consumer champion Maisha Frost on maisha.frost@express.co.uk
Doris took out two over-50s plans plus funeral benefit with SunLife almost a decade ago and this year she reached the point where she had contributed more than the £3,770 guaranteed payout on death.
She originally bought the policies after seeing an advert, was sent the forms, and signed up.
The small print did state however the conditions standard with this form of cover – that payments are fixed and for life to guarantee payment. Cancel the plan and everything is lost.
“It was my fault I didn’t realise, but I want others to be aware. Living so long has taught me quite a few lessons,” Doris told Crusader.
“While it is always important to read the small print, very few of us ever do, which is why seeking a second opinion from an independent expert is always advisable,” says Ian Sawyer, director at health and life insurance broker Assured Futures.
There are persuasive reasons why many people buy these types of ‘over 50s’ life insurance plans, he argues.
“They are quick and easy to buy, usually without answering lots of medical questions, and there is no underwriting, which means you can be covered straight away. But for those reasons they are also typically more expensive than other types of life insurance.”
There are also variations in the type cover people must be aware of, Sawyer explains.
“Alternatives would include ‘term assurance’ where you are insured for a specific length of time, such as 10 or 20 years.
Premiums are less expensive, but if you live longer than the length of the policy there is no money paid out. At least with over 50s plans customers know there will be a payout upon death.
“Another option is known as Whole of Life. This is life cover that runs until you pass away, whenever it may happen, but the policy is fully underwritten with medical questions and the price is based upon your personal circumstances.
“No policy is perfect, nor covers every possible situation, but 99 percent of all life insurance claims in the UK are paid. Either way, always seek a second opinion.”
Cost of living crisis causes distress (Image: Getty)
There is also another important aspect that Doris was unaware of before she pulled out.
If funds are tight and you have lived longer than you expected resulting in you paying more than the payout, try re-negotiating terms before making any final decision.
While not perfect it could ease the situation and enable you still to have the peace of mind of the funeral cover so something definitely worth bearing in mind.
After hearing about Doris’s decision, Ian Atkinson, SunLife’s chief marketing officer, commented: “We are really sorry to hear about any customer who is struggling during the cost-of-living crisis.
“One feature we do offer any customer who contacts us is the ability to reduce their monthly payments. Their payout is also reduced, but it does mean they can keep some cover in place.”
And for those thinking about building a funeral nest-egg, have a look at tax-efficient Isas. Among trusted independent financial source Moneyfacts’ current, best buys are:
Fixed short term – Santander 1 year fixed ISA – £500
Easy Access ISAs – Cynergy Bank – 3.20 percent £1.
Notice ISA – Furness Building Society – 3.30 percent £1,200.
Its expert Rachel Springall suggests:
“ISA season is in full swing with top rate deals seeing an improvement since last month. Savers who are also looking at accounts that do not have an ISA tax-free wrapper will be pleased to see several top-rate deals are now paying higher returns, whereas a few other deals remain competitive.
“Inflation continues to diminish the true spending power of savers’ cash, but this should not deter consumers from shopping around for a better deal.
“Providers are making notable improvements to ISAs as we edge closer to the new tax year, so it’s vital savers take note of the latest offers to hit the market and move quickly to take advantage.
“Those looking to move their older ISAs must be sure to transfer these to another ISA so they can retain their tax-free wrapper and keep in mind not every deal will offer this option.
“Savers who prefer to keep their cash in a flexible account must still take time to check their interest rate regularly, especially to establish if their provider has not passed on base rate rises.
“Time is ticking for consumers to use their ISA allowance, however, savers will notice a rate difference between fixed bonds and ISAs remains, so they must be aware of both their Personal Savings Allowance (PSA) and ISA allowance.
“To make the search for a competitive return easier, it would be wise for savers to sign up to rate alerts and newsletters to keep them up to date.”
[Doris’s name has been changed]