The State Of Over Fifties Life Insurance Cover

Right now, Royal London appears to be at the cutting edge of over-50s life insurance. Shockingly, they are the only insurance provider in the UK to have what they call “Protected Payout. 

What is a Protected Payout?

In simplified terms, when Royal London customers pay into their life insurance policy for at least half of the specified term, their family is guaranteed a payout when they die. More insurance providers need to do this because…

Far too many insurance companies profit from customers’ misfortune, including lost and unclaimed policies. Do you know what insurance companies call this?

Lapse Profit

If you know what that means, your stomach will probably tighten in knots with disgust. If you don’t know, you’re about to find out.

For over-50s life insurance policies, the average policyholder keeps the policy for 7 years before cancelling.

When you cancel a life insurance policy, all your payments become pure profit to the insurer, and you, as the customer, get zero back.

It doesn’t matter if you’ve been paying into the policy for ten or twenty years; the instant you let it lapse, or take the all-too-easy step of cancelling it, it’s lapsed, and you’ve lost everything. Well, not literally, but when it comes to financial protection after you die, yes, everything.

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Why do people cancel such an important financial asset?

Usually because of current financial hardship. This could be due to redundancy, reduced savings or returns on previous investments, higher living expenses, etc. People would rather lose the policy, save the premiums, and pay that towards turning the heating on, for example.

It’s an important decision, and nobody takes it lightly. When you’re in dire straits and must make ends meet, you first assess your current outgoings. Next, you prioritise expenses based on what needs to stay and what can go.

For some, life insurance is viewed as a luxury rather than a necessity. That’s true if you have savings or another policy to cover funeral expenses. But not in all cases, some policyholders have no backup plans, and their only financial security is their life insurance policy.

Here’s what Jerry Toher, CEO of Royal London’s Consumer Division, says on the matter –

“I was dismayed by how much cover is lost and by evidence that most insurers in this market continue to offer customers inflexible products at a time when they need help”.

The all-important figures from Royal London’s report, appropriately titled “High and Dry”:

• 28% of people who bought an Over 50‘s life insurance policy in 2021 – cancelled it.
• As a result, a total of £173m in protection was lost.
• That was based on 52,000 Over-50s who wonder what happens to your life insurance when you retire. More disturbing is the thought of all the other policy types people cancel because of financial hardship.
• Of those 2021 cancellations, premiums paid into the policies represented £86m.

Think about that last figure for a second – £86 million. That’s what goes to insurers as pure Lapse Profit!

That isn’t reassuring, so we felt it was the right time to inform readers of Insurance Hero.

Royal London states that it is actively working with debt charities, Defaqto, and Fairer Finance to address consumer concerns.

Only time will tell whether the work, research, studies, and initiatives will shake up the insurance market and provide greater flexibility in over-50s life insurance, reducing policy cancellations.

In the meantime, if you’re considering cancelling your policy, visit the Royal London debt page for a list of organisations that may help.

To wrap things up:

Here’s a highlight from Emily Weekes of protected.co.uk

“It’s important not to cancel your existing policy until you know you can get cover for the new amount and know what price you’ll pay”.

That makes financial sense.

Related Reading:

Should I Keep My Life Insurance Policy After My Children Graduate?

Reasons to Purchase Life Insurance