Which? is warning consumers that some high-profile products, offering to pay your funeral expenses after you have gone, will pay out far less than you put in - and many will not cover the cost of the funeral anyway.
These plans, often advertised by well-known faces, like Michael Parkinson and Gloria Hunniford, position themselves as warm and friendly products, which will look after your loved ones when you die and offer a free pen into the bargain. However, if you opt in without doing the maths, your loved ones could be in for a nasty surprise.
The dealThe products are designed to appeal to people who haven't put money aside for their loved ones and don't already have life insurance in place. The idea is that you pay in a reasonably affordable sum every month - possibly around £15 - and in return, your family will get a lump sum on your death.
A major attraction for many people is that their health is not taken into account, just their premiums and their age. However, if you stop paying in at any stage, then you don't get any payout at all.
The rip-offHowever, the experts are warning that the fact that so many people are living so much longer means that in many instances they end up paying in more than they receive. Which? did the calculations a few months back, based on a 60-year-old man paying £15 a month into an over-50s plan for 30 years, who would earn a lump sum of just £2,980. It also pointed out that if that same man lived to the age of 90 he would have paid in £5,400 and receive a payout of less than half that amount.
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 could be less than half in today's money.
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Better alternativesIn any case, they highlight that people could get better returns by just putting the money into a cash ISA for the period. The 60-year-old paying £15 a month until he was 80 could divert that money into a cash ISA paying 4%, and would make more than three times more than in an insurance product (£10,313). They recommend that you consider all your options carefully before taking out a plan like this.
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."
Matt Lloyd, Head of Life Insurance at Confused.com says this isn't always clear-cut. He explains: "Using savings solely as a means to provide for funeral expenses can be dangerous as no-one knows in advance when they are going to die, and over-50's life insurance can protect against these eventualities. Perhaps a combination could be viewed as sensible?"
If your life expectancy is lower than normal, doing the maths will show whether you can reasonably expect to get a good deal from these products. Lloyd adds: "If over-50's life insurance is considered to be a the right option for someone, we would encourage them to shop around – using a comparison site like Confused.com can prove very beneficial, by showing consumers how very similar (but far better value) policies can be purchased for very little additional effort."
If you have one alreadyIf you already have a plan and don;t feel it is the right option for you, Martin Lewis advises on his moneysavingexpert.com website that you do the sums to calculate your best bet. He suggests assuming that you start paying in today, and asking whether the amount you pay in over the period you expect to live be more or less than the amount you expect to receive. That way you'll know whether it's worth writing off what you have paid so far in order to save elsewhere.
Of course, you'll still have the free pen.