Matters of life and death: pre-paid probate plans

Post by Mearns & Company in News

The Financial Conduct Authority (FCA) has issued a consumer warning on an unusual form of life cover.

Before your executors can deal with your estate, they will usually need to obtain probate (Confirmation in Scotland), even if there is no inheritance tax to pay. While it is possible for executors to apply for probate personally, the process can be complex and many prefer to use a solicitor.

Probate costs can be significant – Which? suggests on average solicitor firms will charge 2% of the estate value, while banks typically charge double that. For some older people, that expense can be a concern.

The FCA recently issued a warning about a relatively new type of plan being marketed to such worried people – pre-paid probate plans. These plans claim to meet the cost of probate on your estate in exchange for a one-off payment. However, they do not pay out cash; instead, your executors are required to use the probate practitioners nominated by the plan provider.

Unregulated market

The FCA is concerned that there are no regulatory protections in place for the plans. Should the provider go bankrupt, the pre-payment could become no payment. Pre-paid funeral plans began on a similar footing and were eventually brought under FCA regulation after several providers failed, leaving their clients with no compensation. Now, some of the pre-paid funeral providers who did not receive FCA approval have started to promote pre-paid probate plans.

These new operators are trying to sell life assurance without any of the regulations that apply to the marketing of such businesses and the operation of insurance companies. That legal framework is there for good reason. Life assurance is a complex business, with pricing that is poorly understood by the public – a combination that has obvious attractions to scammers. Life assurance also normally involves a long-term contract. If a claim results in no payout, there are likely to be devastating financial consequences.

If you need a lump sum to cover a liability that will arise on death, be it the cost of probate, an outstanding mortgage or something else, straightforward life assurance will normally provide a more flexible and lower-cost solution than an unregulated packaged plan.

The Financial Conduct Authority does not regulate pre-paid probate plans, will writing and some forms of estate planning.

Life Assurance plans typically have no cash in value at any time and cover will cease at the end of term. If premiums stop, then cover will lapse.