Elderly Upset at Misleading TV Ads

Many thousands of older people are finding that life insurance they bought as a result of slick daytime television advertising in the late 80s and early 90s has turned out not to be the great deal that it promised. As a result many pensioners find that they have invested years of premiums into a policy that they can no longer afford and has a surrender value below the combined premiums that they have already paid.

Lured into buying policies dressed up as fabulous deals featuring cheap monthly premiums for the first ten years, many have now found that once they enter the 11th year of cover that their premiums rocket to exorbitant levels. This leaves them with the stark choice of paying the extra premium, slashing the value of their life cover or abandoning the policy altogether.

The policies in question offer the major attractions of allowing anyone under 80 to apply without the need for a medical examination, and offering life cover throughout the policyholder\'s entire lifetime with payment of a lump sum on death. However, many of the people taking out the cover were unaware that after the initial ten year period premiums would rise dramatically.

Insurers targeted older people who wanted to bequeath a modest amount of money to their children tax-free upon death, and also provide for their own funeral expenses. Although the policies are still being sold (figures for 2006 show that almost 180,000 were bought) it is in much lesser numbers than the boom year of 1994 when almost 700,000 policies of this type were taken out.

One unnamed 70 year old took out a whole of life policy in 1991 in order to leave a cash sum to his children. At the start of the policy monthly premiums were 28.51 for 87,000 cover. However, once the ten year promotional period expired he found that to receive the same amount of life cover he would need to increase his monthly premiums to a staggering 269.84 per month, just 72.28 short of his entire annual premiums for the previous year! Unsurprisingly, he and many others cannot afford the increased premiums leaving them to cash in the fund for a paltry amount, well below the value of premiums already paid.

Insurance experts point out that this type of \'maximum\' policy is an incredibly risky investment. Anyone wishing to pass on money to their children would be much better advised to take out a \'standard\' life insurance policy, where premiums are higher at the outset allowing more money to be invested and therefore providing greater growth opportunity for the fund.

That advice is cold comfort to the hundreds of thousands of elderly people who have already paid ten years worth of premiums into maximum policies, and look to be heading for a significant financial loss. However, the Financial Ombudsman admits that complaints about maximum policies are on the rise, and the FSA is closely monitoring the situation because of the vulnerability of the people targeted by this type of product.

Andrew Regan is an online, freelance author from Scotland. He is a keen rugby player and enjoys travelling.

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