KATIE MORLEY INVESTIGATES

If a company has let you down, our consumer champion is here to fight your corner

LETTER OF THE WEEK St James’s Place life cover costs mother £20k a year

I am extremely concerned about the ever-increasing premiums on my parents’ life insurance policy.

My father originally took it out with the J Rothschild partnership, now St James’s Place (SJP), in 1992 when he and my mother were in their early 60s. The idea was that the policy would pay a lump sum to my sister and me when both our mother and father had passed away. Earlier this year my father, who had dementia, died. My mother is now 87.

The sum assured was initially £110,000 but has increased over the 27 years by nearly two and a half times to £247,000. Over the same period the premiums have gone up by 58 times from £329 a year to £19,235 a year.

As the premiums grew bigger my parents would have blazing rows about whether or not to pay them. The sums became so large that they worried themselves sick about keeping up.

My mother recently received a letter from SJP saying that she can maintain the £247,000 payout on death by contributing £19,235 a year for another five years until 2024. After this she can keep paying this amount but the payout will halve to £123,500 when she dies. Or she can maintain the £247,000 payout by increasing payments to £43,941 a year.

The premiums are now absurdly high considering the amount assured and to me this feels like legalised extortion. My parents have now paid in £144,000. If my mother carries on, it will not be long before the amount paid in exceeds the sum assured.

We have considered stopping payments altogether as they are starting to feel unaffordable. But if she does this we will get £49,000 instead of £247,000, which means forfeiting £198,000.

SS, HERTS

Your family faces a horrible Catch 22: surrender the policy and see £198,000 of the final payout go up in smoke, or keep up payments and eventually accept a gaping financial loss that grows with every year your mother stays alive. Far from creating the financial peace of mind intended, this policy has become a wretched source of misery. A loss of hundreds of thousands could even feel like a sick incentive for your mother to die.

The annual premiums have spiralled wildly beyond all expectations, to the point of being unaffordable. If your mother continues with the policy and lives another five years to 93, the amount paid in will eclipse the sum assured. If your mother lives another 10 years to 97, which you say is perfectly feasible given her current condition, the amount paid in will reach £432,000, nearly double the sum assured.

And let’s not forget that behind the scenes at SJP, your parents’ money is being invested in the stock market. Over 27 years it ought to have grown substantially. This unknown quantity of returns has been creamed off by SJP in return for taking on the risk of footing a six-figure payout in the event of both your parents dying young. As it is, your mother is still going strong at 87, so SJP now stands to gain at her expense. I’m afraid that’s just how life insurance works.

This is not to say that the policy is all fine and dandy, though. Far from it, I suspect. I asked SJP to review your case and consider whether the policy had been mis-sold. It denied mis-selling. What it did admit was that the method used to calculate your parents’ yearly increases might have produced premiums that were too high. Correspondence dating back as far as 1994 suggests your father did not understand the way the rises were calculated. In one exchange he asked SJP to explain the methodology and its response was as clear as mud.

I have established that the premiums were based on a table of likely death dates, with fund charges and performance also reflected. The latter two factors were never mentioned in SJP’s 1994 response.

I find SJP’s lack of transparency over this deeply troubling, especially given that compounded premium rises of up to 24pc a year are the reason why this policy is now unaffordable.

SJP says it wrote to your parents every year offering them the chance to “review” their policy. As your parents never took up this offer, it said, it was unable to rejig the policy to ensure it met their needs. However, as a gesture of goodwill following my involvement, SJP says it has now “restructured” the policy to suit your mother’s needs.

As a result, she has nothing more to pay but you and your sister will still receive the full £247,000 when she dies. So your family will now be £198,000 better off than if your mother had cashed in the policy for £49,000 to stop the premiums. Had she continued to pay, her extra bill could have run towards £500,000. SJP has also offered £500 for the upset caused.

A spokesman said: “We were sorry to learn that the increases in premiums were causing the clients distress, and are pleased to have had the opportunity to review this now.”

I too am pleased that SJP has put its hand in its pocket to make things right with your mother. It said it would now make a loss on her policy, but hasn’t explained how. It has resisted repeated requests for a pounds and pence breakdown of all fees, fund charges and commission paid by your parents to date.

I can’t help but wonder whether SJP has written off a potentially vast sum of future profit because of my involvement. I hate to think that there may be other elderly SJP customers sitting at home, quietly fretting about obscenely high premiums.

In 2016 I went on a business trip to Cyprus and opened a package that contained marijuana. I was imprisoned there for three years for drug smuggling. I didn’t do it, but I pleaded guilty to get a shorter sentence. I was released in May and now my credit rating is poor.

Three issued a £31 default charge as I didn’t pay for my mobile phone contract while inside. When I got out I offered to pay but Three is refusing to remove the default from my credit report. I’m trying to get my life back on track and this feels like a slap in the face.

ANON

Credit ratings exist for good reason. They tell lenders which borrowers are reliable – and which they may want to avoid. I’m afraid someone who has been banged up for smuggling weed is likely to be viewed as less desirable by lenders.

You say you are innocent but whatever the truth you have spent three years of your life behind bars. I am a firm believer in redemption, and would not want to see you unfairly hampered in rebuilding your life, so I asked Three to check that it had correctly followed its own policy for incarcerated customers.

It said if a customer went to prison for more than six months and provided evidence of this, the account would be closed and written off. I passed it documents proving your three-year sentence and it duly wrote off your £31 debt and cancelled the black mark. I am pleased this will help you make the fresh start you need, if only in a small way.

I was jailed for drugs. Now my credit rating is ruined