'Beware the ‘Over 50 Sun Life Axa Plan’... blog discussion

cepheus · 20 October 2010 at 8:50AM

The bottom line is that if you have a terminal illness, or are a man over 80 or a woman over 83, chances are that the payout will be more than you pay in.

Life expectancy tables

A lot of people must know this, and the old and ill are subsidised by those younger healthier people.

This product seems to be an annuity in reverse, if I am not mistaken?

MSE_Martin · 20 October 2010 at 9:32AM

Lovingthisboard wrote: »

Comparing savings/pure investment with protection is not really a fair one.

If you say after x years you'd have the equivalent in savings to the guaranteed amount had you put the premiums into the bank rather than paying the insurance, you're completely ignoring the fact that you would have received more than you paid in had you died during those x years. That has/had a value and a cost i.e. probability of dying times shortfall at death (at monthly intervals, say). That 'cost' would have to be deducted from each £6, leaving less to 'put in the bank' and pushing the 'breakeven' point a lot further into the future.

You (and the majority) mightn't have died but some did and your monetary loss was effectively their monetary gain. Insurance is a pooling of experience (some take from the pot, some give to it and the insurer prices to hopefully make an overall profit by analysing likely mortality experience allowing for anti-selection, and admin/marketing expenses, supervisory reserving requirements etc)

It's like saying my house hasn't been burgled or burned down therefore all my house insurance premiums have been a waste of money (and I should have put them into the bank instead - I'd now have a good few grand + interest). You have of course 'lost' if the event didn't happen but as said above you got piece of mind for 'what if'. Meanwhile someone did claim for £10K having only paid a few hundred in total - you and many others subbed that, that's insurance!

I disagree I think its a very fair comparison.

You can self insure your home too and need look at the same equation.

Taking your "my house burned down' example. Lets say buildings insurance would pay out £100,000 and your premium is £200 a year.

That means it would take 200 years to build up the same pot. Yet with Sun Life its just 8 years (for 65 man in my blog) and therefore on average as most people live much longer its not worth it.

You are quite right, the trade off is a more money if you die within 8 years for less money if you die after 8 years. For most people though that's a bad bet as they're likely to live substantially longer.

richdig15 · 20 October 2010 at 9:43AM

Over recent years I too have looked at this type of plan. My first thought was that if i put funds in building society , might at some time in future be tempted to use them !!!.

Anyway after some research, I settled for a Friendly Society 50+ plan; into which I pay £20 per month; and which no medical is required
I took this out at 65 years old.

the basic cover is £3192; so this equates to paying premiums for 13 years and 4 months before premiums exceed sum assured.

BUT, and here is what attracted me is that the premiums are paid into a with profits fund; so if i live to a good ripe old age the return may be higher than the guaranteed sum assured.; and in addition in cases say of hardship, one can cancel the policy and get some of monies paid in back.

There are none of the freebies up front like tv ad policies but there are other fringe benefits by being a member of a friendly society.

This might not be every person's choice, but it gives me some peace of mind and suits my circumstances.

It is worth spending some time on the net looking at options available

Richard

portlandboy · 20 October 2010 at 10:37AM

Hi,
My father had a Sun Life policy for a number of years. I do not know how much he paid into it so can't comment on the equivalent value of the pay out when he died, but I would like to add a little message to the discussion.
The advertising claims that it will provide money after you die and, amongst other suggestions, it highlights the fact that the money will help your relatives to pay for your funeral costs. But this is a bit misleading, as AXA will not pay out any money due to an estate until probate has been obtained, they rarely pay out in time to use the money for the funeral bill. Probate companies state 6-9 months to get the grant of probate and most funeral directors give 28 days for the bill to be paid in full.
I realise that my case was an exeptional one as I had a lot of trouble with a probate company (see this MSE thread: http://forums.moneysavingexpert.com/showthread.php?t=1935955) but I got the money due to me from Sun Life 18 months after my father died because the probate company held it with the estate funds.

csj_2 · 20 October 2010 at 2:35PM

The best feature of this AXA Plan is the free gift on offer. Sign up at £6 per month and select the free TV voucher from Argos (worth about £120). Wait for the first £6 instalment to be taken from your bank account,wait for the Argos voucher to arrive, cancel the plan and take the voucher to Argos. Either take and keep the TV, or return it a day or so later for a new long-dated Argos voucher.

This may not sound very ethical but then neither is the AXA plan itself. I know of people who've made about £500 from this ploy. Don't, however, opt for the other freebies e.g. the satnav unless you really want them - they are worth a lot less thasn the TV and some of them are not returnable to Argos e.g. the satnavs.

jamesarmitage · 20 October 2010 at 2:45PM

I can't honestly think of many families who would find £570 that useful if someone died. My will provides for my estate to pay for my funeral and the beer and pies that will follow. These plans are a poor product advertised in a way that will appeal to the worried well IMO. Why not sell one that asks for a medical, rejects some applicants and pays out more to those who pass?

pollydan · 20 October 2010 at 2:56PM

I read with interest the comments on the Sun life Axa over 50 plan as i was about to start one of those plans, I am coming up to 63 and have had ill health and find it impossible to find insurance that is within my financial reach, and was wondering if any of your readers could suggest anything that would cover funeral expenses as i do not want to leave the burden on my family.
thanks

jamesd · 20 October 2010 at 3:15PM

cepheus wrote: »

Life expectancy tables

Wrong tables. Those are period, not cohort, tables and aren't suitable for this purpose. I linked to the appropriate cohort tables for the latest central projection for the UK. As the Government Actuary's Department explains:

"Period life expectancy at a given age for an area is the average number of years a person would live, if he or she experienced the particular area’s age-specific mortality rates for that time period throughout his or her life. It makes no allowance for any later actual or projected changes in mortality. In practice, death rates of the area are likely to change in the future so period life expectancy does not therefore give the number of years someone could actually expect to live. Also, people may live in other areas for at least some part of their lives.

Cohort life expectancies are calculated using age-specific mortality rates which allow for known or projected changes in mortality in later years and are thus regarded as a more appropriate measure of how long a person of a given age would be expected to live, on average, than period life expectancy.

For example, period life expectancy at age 65 in 2000 would be worked out using the mortality rate for age 65 in 2000, for age 66 in 2000, for age 67 in 2000, and so on. Cohort life expectancy at age 65 in 2000 would be worked out using the mortality rate for age 65 in 2000, for age 66 in 2001, for age 67 in 2002, and so on.

Period life expectancies are a useful measure of mortality rates actually experienced over a given period and, for past years, provide an objective means of comparison of the trends in mortality over time, between areas of a country and with other countries. Official life tables in the UK and in other countries which relate to past years are generally period life tables for these reasons. Cohort life expectancies, even for past years, usually require projected mortality rates for their calculation and hence, in such cases, involve an element of subjectivity.

Period life expectancies are sometimes mistakenly interpreted by users as allowing for subsequent mortality changes. Period life expectancy answers the question ‘For a group of people aged x in a given year, how long would they live, on average, if they experienced the age-specific mortality rates above age x of the period in question over the course of their remaining lives?’

The cohort life expectancy answers the question ‘For a group of people aged x in a given year, how long would we expect them to live, on average, if they experienced the actual or projected future age-specific mortality rates not from the given year but from the series of future years in which they will actually reach each succeeding age if they survive?’ If mortality rates at age x and above are projected to decrease in future years, the cohort life expectancy at age x will be greater than the period life expectancy at age x."

The tables you linked to are appropriate for looking at the past but not for looking at the future.

Neil_Lovatt · 20 October 2010 at 3:59PM

What's interesting is that the market is increasingly getting driven down the aggregator route, like most life assurance, making it more a commodity driven product and therefore you should see rates improve somewhat.

However I think it is totally unrealistic to assume a 3% interest rate on that level of money, unless you are expecting some utopian world where customers are constantly switching their bank accounts chasing the top rates (and incidentally in this utopia such interest rates would drop like a stone). Furthermore I think that the estimates of life expectancy are a lot more realistic than you might think for the typical customer purchasing such a product.

It's perfectly valid to run such an implied death date on this type of product but I would be very wary of making the case that customers should reasonably expect to exceed this age, on a normal distribution a good proportion of them will, but a good proportion will also not live long enough to see that age and even for those that exceed this age by a few years the insurance is not simply about financial gain but about the comfort of knowing that you have had the cover when you needed it.

For example if you take out flood insurance on your house should you get upset when after 20 years you haven't made a claim?

Finally it's also worth pointing out that the distribution of death is skewed in these plans (i.e. you can't die before you take out the plan) there will therefore be a small (but significant) number of customers who live considerably longer than their implied death date, and to the maximum payment age of these plans 85/90.

Does this mean that the plan is poor? Well it depend on what you are buying it for, if it's an investment then probably not, if it's for the peace of mind of knowing that you have a fixed lump sum set aside when you die then this clearly fills a gap... unless you know precisely when you are going to die.

jamesarmitage · 20 October 2010 at 4:08PM

Pollydan - will the value of your estate cover the cost of a modest funeral? Even a cash ISA might provide a better rate of return? Rates over 3% have been available this year

'Beware the ‘Over 50 Sun Life Axa Plan’... blog discussion

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