Scottish Friendly launches revamped over 50s plan despite shrinking market

Over 50s plans are largely non-advised, and are designed for those who struggle to get cover for ‘uninsurable conditions’ - such as motor neuron disease - or for those who prefer not to share their health details with third parties.

Over 50s plans used to be one of the insurance industry’s fastest growing markets, according to CIExpert’s Alan Lakey, but this growth has since tapered off.

In 2020, the number of over 50s life insurance policies taken out fell 10 per cent on the previous year, seeing the total value of new premiums drop from £67.1mn to £61.6mn, according to market research from Mintel.

Lakey suspects this was down to those who need the plans having already “filled their buckets”. Though the research did suggest Covid-19 has made the over 50s think more about life insurance options and there could be a return to growth.

Scottish Friendly’s latest plan, which is non-advised, is targeting those looking to insure up to just £20,000.

The plan offers a fixed cash benefit in the event of a client’s death after two years of holding the policy, but it also allows a client to cash in a proportion of their benefit early - after four years of paying premiums, which start from £7 a month (for a 50 year old non-smoker with a sum assured of £2,000).

If the mutual achieves investment growth on their with-profits fund, this can also be used to provide the customer with an early premium end date.

Adam Higgs, research head at Protection Guru, said the plan seemed to turn the traditional over 50s model “on its head”, by using investment returns to reduce the amount the client has to pay to become entitled to a death benefit.

Scottish Friendly said it had spent two years researching and developing the plan.

Neil Lovatt, commercial director at Scottish Friendly, said: “The over 50s life insurance market has been crying out for change for several years.

"We realised that we needed to come up with some radical thinking in order to improve the broken model which can expose vulnerable customers to the risk of non payment.

“It’s game changing...in time, as the mills of the industry grind out new product designs, we’re expecting others in the industry to follow our lead.”

But Higgs said he doesn’t see a need for massive change or innovation of over 50s plans, echoing Lakey’s point about a now shrinking market.

Even though the market isn’t growing, it is still profitable, according to Higgs. “A lot of these plans are only direct-to-consumer and rely on a carriage clock to get people through the door. This means the cost of acquisition must be high, and so profit margins should, in theory, be wide.”

There are, however, a number of drawbacks to over 50s plans, explaining why most advisers will only look to them as a last resort. The biggest one is price.

Lakey ran a comparison between Scottish Friendly and AIG, which requires medical checks. A non-smoking male born in 1955 and looking to insure a value of £10,000 would pay £50.96 a month to Scottish Friendly, and £33.45p a month to AIG for the same cover - this latter figure also includes commission to the adviser.

“Scottish Friendly is normal within its marketplace,” Lakey explained, having compared it with a rival which charges a 1 per cent higher premium.

The mutual’s latest over 50s plan also can’t be written in trust, which means if the policyholder dies, the amount they insured will go through a probate process with the taxman.

If it was in trust, this would mean insurance was paid out immediately upon death, allowing family members to use the payout to cover funeral costs.

Lakey explained that for the provider, this option was cheaper because it avoids filling out trust forms and taking on the extra risk, but it is not necessarily better for the client.

The maximum age of Scottish Friendly’s policy also cuts off at 74, whereas other whole of life policies on the market can range up to 85.

ruby.hinchliffe@ft.com