The Life Insurance Trap at Checkout: Supermarkets use aggressive tactics to push cover that may not be adequate
The supermarket sales war could result in hundreds of thousands of people buying life insurance that doesn’t fit their needs.
Supermarkets use more aggressive selling tactics, offering extra loyalty points, cash back and voucher “sweets” if you buy a life insurance policy – which promises to give your family a sum of money upon your death.
Shoppers are drawn towards a one-stop-shop for everything from food and clothing to finance and soon legal services too.
Over the counter: The ease of buying life insurance advertised in glossy flyers next to a loaf of bread may mean sacrificing extra benefits
But the convenience of buying life insurance advertised in glossy flyers alongside a loaf of bread can mean sacrificing extra benefits—and sometimes cheaper rates—.
“Supermarkets can pick people who offer cheaper cover and charge premiums for people who don’t tick all the boxes,” says Kevin Carr, a protection specialist who runs his own consulting firm. They may seem cheaper to start with, but getting a competitive deal is about researching more than one company.
In one example of how rates can vary, a 40-year-old woman who insured a lump sum of £250,000 for her family in the event of her death would pay £17.77 a month with Tesco, with the policy lasting 15 years.
The same deal can be found with a different insurance company, Aviva, at £682 over the life of the policy.
Giant insurance companies have hired big-name stores to help boost sales. Tesco and John Lewis are associated with Friends Life, while Sainsbury’s is associated with Legal & General.
Conversely, Asda directs customers to LifeSearch, which offers free advice and searches across the marketplace.
Shoppers who only deal with one company may fail to discover cheaper deals available through advisors or website comparison services.
It is also your responsibility to purchase the right type of insurance. For example, if you have a paying mortgage, a diminishing policy promises you’ll pay less over time as the mortgage debt decreases.
This cover is cheaper than level policies, which pay a fixed amount regardless of what stage you die at during the term of the policy and the advisor will know which one to recommend.
Life insurance premiums are likely to rise in the next year, and a rush to buy cheaper cover up front is expected.
This is because of an EU ruling that says insurance cannot be priced differently for men and women – even though women are more likely to live longer, making it less likely that the insurance company will pay out.
Matt Morris, of LifeSearch Insurance Protection Advisers, warns people to seek advice first. As more people rush to buy before the inevitable price hike, the likelihood of avoidable mistakes increases.
These errors rarely appear until the time of the prompt and then it is too late to change them.
About 46 percent of life insurance deals were purchased without advice in 2010, according to the most recent figures available. This equates to about 460,000 policies.
Skipping tips can also mean giving up advice that greatly enhances your family’s financial well-being if the unexpected happens.
For example, counselors recommend that couples purchase a policy for each other rather than a joint plan. It is cost effective and means that the children will receive two large payments if both parents die.
A joint policy pays only once, when either parent dies. So if the surviving spouse also died, there would be no additional money for the children.
“The supermarkets are less likely to tell you about trusts, which can be arranged with your life insurance for free,” adds Kevin Carr.
Establishing a trust along with a life policy means that the money is legally returned to the beneficiary and paid directly to them.
Otherwise, after your death, payments are added to your estate first and assessed for inheritance tax. It can take months for your family to get the money they need.
Tesco Bank says its customer service teams provide guidance and stresses that customers should ensure the policy meets their needs.
Helen Williams, of Sainsbury’s Finance, says it covers “a growing proportion of people who know their requirements and prefer to buy directly, without advice”.
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