‘My in­surer will cut my life cover by 82pc’

The Daily Telegraph - Your Money - - YOUR MONEY -

Aviva is hold­ing this 75-year-old to ran­som: she must pay £5,600 more per year or lose most of her cover, writes Amelia Mur­ray

In one of the most shock­ing of many cases to emerge in­volv­ing life in­sur­ance plans sold in the Eight­ies, a woman aged 75 has been told to in­crease her cur­rent £2,178 an­nual pre­mium to £7,784. Provider Friends Life, part of gi­ant in­surer Aviva, warned her that if she did not make this in­crease her pay­out on death would fall from £206,083 to £38,597.

Friends Life soft­ened the blow by say­ing the pre­mium in­crease would start to ap­ply only in seven years’ time. But this is a worry for Your Money reader Marie Burkin­shaw, who will be 82 when she is ex­pected to find the ex­tra money.

From the late Seven­ties to early Nineties “whole of life” in­sur­ance poli­cies were ag­gres­sively sold as a way to clear mort­gage debts or meet fu­neral costs at death.

Years later, count­less pol­i­cy­hold­ers are now dis­cov­er­ing the “re­view­able” na­ture of the in­sur­ance. This means pre­mi­ums can be put up by in­sur­ers, of­ten with no ex­pla­na­tion.

Tele­graph Money has been in­un­dated with emails from shocked read­ers who, af­ter pay­ing pre­mi­ums for 10 years or more, have been told these pay­ments must in­crease – or the cover will be cut.

Ms Burkin­shaw and her late hus­band were sold a Sun Life “flex­i­ble life in­sur­ance pol­icy” in 1986 by in­de­pen­dent bro­ker Li­onel Smith & Co. It was sup­posed to cover in­her­i­tance tax.

At a time of the sale, Ms Burkin­shaw was vis­ited at her home by the direc­tor of the firm and a Sun Life rep­re­sen­ta­tive.

For years she has been pay­ing an an­nual pre­mium of £2,178 for two poli­cies to en­sure cover of £206,083. Dur­ing this time, the provider changed to Axa and then Friends Life, now part of the Aviva group, and her pre­mi­ums did not in­crease.

It is un­clear pre­cisely how much her pre­mi­ums over the decades have come to, but the to­tal is at least £48,000.

Last year she was con­tacted by Friends Life and told that, in or­der to main­tain her cover for the rest of her life, she would need to pay £7,784 – an ex­tra £5,606 a year, or al­most £500 per month.

Friends Life said her cover could be main­tained for the next seven years at her cur­rent pre­mium. If no ac­tion were taken by this time, cover would fall to £38,597.

Crit­ics of these plans say they are un­fair be­cause the in­surer car­ries no risk – the risk rests with the pol­i­cy­holder.

Ms Burkin­shaw said she was shocked by the “re­view­able” na­ture of the pol­icy.

She said: “I was never told this was how it worked. I saw it as life in­sur­ance – I didn’t re­alise there was an in­vest­ment part to it.”

With some whole of life poli­cies, part of the pre­mium is in­vested in a fund ex­posed to shares, bonds and other as­sets.

When the plans are re­viewed, cus­tomers may face a pre­mium in­crease or cut to their cover if these in­vest­ments have per­formed poorly.

In­de­pen­dent in­sur­ance con­sul­tant Kevin Carr said Ms Burkin­shaw might have had a re­view ev­ery 10 years. But the pre­mium might not have changed be­cause the in­vest­ment per­for­mance was ad­e­quate.

He said a num­ber of things had af­fected in­sur­ers’ in­vest­ments, in­clud­ing a fall in re­turns on gilts.

Ms Burkin­shaw said: “Hav­ing paid the pre­mi­ums for 29 years, to be in­formed at this late stage in my life, and on a fixed re­tire­ment in­come, that I would have to find an ad­di­tional an­nual pre­mium of some £5,500, which can again in­crease, is most un­fair.”

Nor will the ex­tra pre­mium guar­an­tee cover. Pre­mi­ums could rise again.

The let­ter said the new £7,784 pre­mium “should” main­tain the cover for the rest of Ms Burkin­shaw’s life, but added that the pre­mium could still change, de­pend­ing on “whether the as­sump­tions made, in­clud­ing those con­cern­ing in­vest­ment growth and the cost of pro­vid­ing the cover, are borne out in prac­tice”.

Ms Burkin­shaw was also given the op­tion to in­crease her pre­mium to £5,010 – still al­most dou­ble her cur­rent pay­ment – to guar­an­tee the present pro­jected sum for the next 10 years. Al­ter­na­tively, she could con­tinue to pay the same pre­mium and have pro­jected pay­out re­duced.

She com­plained about the mis­selling of the pol­icy to the Fi­nan­cial Om­buds­man Ser­vice, the res­o­lu­tion ser­vice. How­ever, she was told her case was out­side the om­buds­man’s ju­ris­dic­tion as “the pe­riod of sale” was not cov­ered.

Reg­u­la­tions about the ad­vice given on fi­nan­cial prod­ucts came into ef­fect on April 1 1988. Martyn James, a con­sul­tant and former spokesman for the om­buds­man ser­vice, said just be­cause a prob­lem pre­dated the om­buds­man’s ex­is­tence did not mean you could not make a com­plaint.

He said it was worth con­tact­ing the om­buds­man any­way, as well as the Fi­nan­cial Con­duct Author­ity, which reg­u­lates fi­nan­cial firms.

In this case, Mr James sug­gested that Ms Burkin­shaw could file a com­plaint with the com­pany ap­pointed as the agent of her plan, Red­wood Busi­ness In­sur­ance Ser­vices.

Mr James said: “The new firm is not re­spon­si­ble for pre­vi­ous busi­ness and how poli­cies were orig­i­nally sold. How­ever, if it is tak­ing com­mis­sion from the pre­mi­ums paid by clients, it has a duty to make sure they un­der­stand what they are pay­ing for.”

“If Ms Burkin­shaw had known her pol­icy was re­view­able be­fore, when she was younger and in bet­ter health, she could have gone else­where and saved her­self money. The ques­tion is, did the new firm pre­vent her from do­ing so?”

Red­wood Busi­ness In­sur­ance Ser­vices de­clined to com­ment.

Re­lat­ing to the plan it­self, a spokesman for Aviva said: “Re­views of these types of poli­cies are pe­ri­od­i­cally taken in or­der to de­ter­mine whether the level of cover pro­vided can be sus­tained by the pre­mi­ums and, if not, to no­tify the cus­tomer of their op­tions to re­duce cover or in­crease their pre­mi­ums.

“Ms Burkin­shaw’s pol­icy has not had a pre­mium in­crease since it started in 1986, and our most re­cent re­view of her pol­icy an­tic­i­pated that her cur­rent level of cover could be sus­tained for a fur­ther seven years un­til 2022, at which point an in­crease in pre­mi­ums or re­duc­tion in ben­e­fit may be re­quired.”

‘How is this in­sur­ance when the pol­i­cy­holder car­ries all the risk?’

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