Which? is warning that investment plans marketed to people over the age of 50 could be a huge mistake for many, as the returns could fall far short of those available on a decent cash ISA.
So what's going on?
The sales pitchThese plans require the investor to put aside a lump sum every month - usually as little as £15 until they die (or for the next 30 or 40 years - depending on which comes soonest). In return they get a lump sum added to their contributions on their death.
It all sounds like a very good idea when celebrities like Michael Parkinson and Cilla Black smile out from the adverts, assuring you it'll give you peace of mind by helping pay for your funeral or look after your loved ones when you have passed away.
The problemsHowever, in reality they suffer from two fundamental flaws. The first is that they are massively inflexible. You need to pay in each and every month until your death or until the policy comes to an end. If you miss even one month, you will forfeit the lump sum - and may even have to give up some of the money you have paid in. In reality it's impossible to second-guess what life will be like that far in advance. Can you honestly tell what you will be able to put aside every month in 30 years' time?
Die quick!This is a worst case scenario, because the longer you live, the worse a deal these things become. You would have to die fairly soon after taking out the plan in order to benefit. However, you can't afford to die too soon, or some providers will dramatically cut the payout, so it seems there are very few circumstances when this arrangement becomes worthwhile.
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."
There is one group for whom these products may suit. They don't require you to take a medical before you buy into the product, This means they may provide a useful alternative for those who are too unwell to buy life insurance. Everyone else should think long and hard before touching them with a bargepole.
Which year of the plan does a 4% cash ISA become a better option?SHEPHERDS FRIENDLY, pays £3,450. Cash ISA beats it in year 15
ENGAGE MUTUAL pays £3,366. Cash ISA beats it in year 14
FAMILY INVESTMENT pays £3,288. Cash ISA beats it in year 14
RIAS pays £3,281. Cash ISA beats it in year 14
SAGA pays £3,139. Cash ISA beats it in year 14
SUN LIFE DIRECT (AXA) pays £3,020. Cash ISA beats it in year 13
TESCO pays £2,942. Cash ISA beats it in year 13
AA pays £2,940. Cash ISA beats it in year 13
ASDA pays £2,890. Cash ISA beats it in year 13
LEGAL & GENERAL pays £2,879. Cash ISA beats it in year 13
SAINSBURY'S pays £2,879. Cash ISA beats it in year 13
SKIPTON BS pays £2,879. Cash ISA beats it in year 13
LV= pays £2,815. Cash ISA beats it in year 13
STANDARD LIFE pays £2,815. Cash ISA beats it in year 13
AVIVA pays £2,712. Cash ISA beats it in year 12
POST OFFICE pays £2,712. Cash ISA beats it in year 12
NATIONWIDE BS pays £2,650. Cash ISA beats it in year 12
average pays £2,980. Cash ISA beats it in year 13