Massively underperformed Life Insurance Plan

KK14

My mum passed away a few months ago. I didn’t know that she had a Life Insurance policy which came as a shock but what has
happened since is even more shocking.
The claim amount came through today. I’m so angry on behalf on my mum. She paid in over £7k for this policy for 27 years. The payout is £723. I’m shocked...... there is no way she would have paid out all that money to get next to nothing back in comparison, do I have any recourse with this?

lisyloo

Sorry for your loss.

No you don’t have any recourse.

If she’d died the day after taking the insurance policy she’d have been a “winner” financially. She’s a “loser” because she lived a long time.

This is how insurance works.
You pay for the peace of mind for covering a risk (say a funeral).
Some people “win” others “lose” that’s the way insurance works.

It’s ironic because being a “loser” means she’s had a lot more life.

I suspect (because this is a rather odd figure) that this was to cover the cost of a funeral and the forecast for funeral costs 27 years ago has turned out to be not very good as funeral costs have increased beyond expectations over that time.

Sorry, but some people don’t live a long time and the insurance company collects hardly any premiums and others live a long time and effectively cross subsidise those who die much younger.
That’s the way life insurance works.

Our parents had similar policies, again for odd figures £1866 & £1957 taken out to cover funerals 20 years ago.

Old_Lifer

If we are to help with this you need tell us what was the original sum assured when the policy was taken out (this will be shown in the policy schedule) and what was your mothers age when she died.

KK14

Thank you!
I have absolutely no idea about the original sum assured. The policy plan simply says AA over 50’s life plan. I believe it was an old Eagle Star Insurance plan. My mum was 90 when she died. She might as well had not paid into anything at all & left the money in the bank.

lisyloo

KK14 wrote: »

Thank you!
I have absolutely no idea about the original sum assured. The policy plan simply says AA over 50’s life plan. I believe it was an old Eagle Star Insurance plan. My mum was 90 when she died. She might as well had not paid into anything at all & left the money in the bank.

That’s easy with hindsight (as would be winning the lottery or betting on horses).
If you mum had died the day after purchasing the policy her funeral would have been paid for (and it probably would have covered the cost 27 years ago).
The reason why she took it was to cover that risk from day 1 and it has served its purpose (albeit a fixed amount and not enough to cover a funeral at today’s prices).

If we knew when we were going to die then we could all save a fortune.
In the early years this insurance policy would have been very useful.

She could have stopped it at any time but of course she had the same dilemma in not knowing whether she might die soon after cancelling.

Insurance is there to cover Unknowns.
For her to have had a long life and not had to claim is arguable the best thing that could have happened.

It might seem a ripoff to you but there are people who die early on who don’t pay very many premiums and the insurance company have to cover the cost of those.

It may not have been a great plan but she had the choice to cancel it at any time.

Sorry for your loss.

Is there a will? Executor?
The insurance company will want some paperwork - death certificate, will etc.

If it was an insurance for a fixed amount of £723 then it has not underperformed. It has done exactly what it was intended to do I.e. pay out £723

Queenriderbrekke

https://www.theaa.com/life-insurance/over-50s

lisyloo

Your cash sum is fixed at outset and inflation will reduce its buying power over time.

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KK14

Thank you for the replies.
I don’t know what kind of cover it was but this was taken out when both my parents were alive.
My dad was savvy with his finances so I can’t see that he would have said this was ok.

The executor is a family friend so he knows what to do with claiming the money in any case. And that would have paid for not even half of the funeral costs. Personally, I think it may have been mis sold!

Weighty1

KK14 wrote: »

Personally, I think it may have been mis sold!

Sorry for your loss. Never an easy time and especially when things like this lead to ill-feeling towards the insurer.

I'm afraid there's nothing to suggest the cover was missold and the chances are it was taken out well before the days of regulation. Unfortunately, nobody knows what's around the corner and as has been said, when taken out this may have been expect to cover the funeral but inflation is a funny thing and funeral costs inflation is far, far higher than general cost of living inflation.

Robin9

So your Mum would been paying £20 a month. As others had said if she had died shortly after taking out the policy it would have paid out and you would have been pleased. I'm sorry but this is one where your dad took his eye off the ball.

garth549

Sorry to hear this. I'm afraid these policies are generally terrible value for money and you're nearly always better off just putting the money into a savings account.