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 executors can apply for probate directly, the process can be complex and many prefer to use a solicitor. Probate costs can be significant – Which? suggests solicitors will typically charge 2% of the estate value.

The FCA recently issued a warning about a relatively new type of plan being marketed to people worried about probate costs – pre-paid probate plans. These plans claim to meet the cost of probate on your estate in exchange for a one-off payment. The FCA is concerned that there are no regulatory protections in place for the plans. Should the provider go bust, the prepayment 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.

Risk of serious consequences

Both types of plan were designed as a way to sell life cover without any of the usual regulations. However, life assurance is a complex business which 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 a packaged plan.