Those forward-thinking insurance policyholders who have previously chosen to secure a future for their family after they’re no longer in a position to, are counting the cost right now, on news that they could have to double their existing premiums to safeguard the cover they currently enjoy.
That’s due to the latest revelations which have rocked the UK’s ‘whole of life’ policy market – and are set to directly affect some 15 million life insured parties – thanks to the policy providers having made a mess of their maths in the first instance.
Many of Britain’s leading life insurance providers have egg on their faces right now after it’s just emerged that their original figures didn’t stack up when calculating premiums for those trusting policyholders who opted for whole of life coverage. The upshot of which being that ‘death payments’ are subsequently predicted to be slashed by around 70% in the more extreme instances (or at least by 50%, best case scenario).
This will come as a huge shock to those people who have been paying they’re annual premiums for the past two decades, who in the wake of the realisation of this unprecedented mistake by certain insurers will face having to double their existing premium they fork out, or alternatively brace themselves for massive cover reductions.
The scale of miscalculations is vast according to financial experts, yet it appears that those life insurance policyholder who’ll be directly affected by it won’t have any grounds to contest what is, seemingly, a gross injustice; largely because (and as verified by the Financial Ombudsman Service) the whole of life policies in the spotlight are ‘too old’.
As you’re doubtless well aware, whole of life plans tend to be reviewed at regular (and pre-determined) intervals, normally after 10, 15 and then 20 years have passed, at which final juncture the range of cover can be amended. And what’s more they are habitually arranged by policyholders keen to protect the financial interests of their surviving family members in the event of their demise, with a view to settling outstanding mortgages amongst fulfilling other key criteria.
Whole of Life Policyholders Could See Premiums Doubled If They Wish to Protect Existing Cover, Due to Insurers Getting Sums Wrong
Leading the chorus of criticism once these headline-grabbing revelations were made public of late, the Chairman of independent financial advice specialists, Steel Asset Management, Alan Steel told the press that; “The whole business is absolutely outrageous,” adding; “The truth is many of these contracts paid a high commission and that is why they were sold.” He, along with numerous other outraged parties met the news with disbelief and cited the insurers collectively responsible as being in their words, ‘overly-optimistic’ with regards to their calculations from the outset.
Highlighting one particular case, the Sunday Telegraph newspaper (which led an initial investigation into life insurance misadventure as such) documented a Sun Life of Canada policyholder as an example of bad practice over 20 years ago. Having paid whole of life cover to ensure they’re mortgage was suitably protected back in the 1980s, one policyholder was devastated to learn that they cover was to be cut by 70%; consequently meaning a reduction from a potential £113,500 pay-out at the end of the day to a re-calculated £36,950 here and now.
Detailing the reasons behind this grave revising down of so many whole of life policies, one leading financial expert pointed the finger of guilt at underwriters who basically ‘assumed that investments underlying these policies would make double-digit returns’ in the long run.
Yet the reality is they ultimately performed far worse than projected. This has led to countless complaints being registered with the FOS, with many adamant that policy providers had failed previously to explain the timely reviews and how terms could potentially be effected by a number of factors essentially out of their control.
In further conversation with the Daily Mail, an FOS spokesperson confirmed; “Complaints about these contracts are consistently high and usually linked to the review dates. Most complaints we see about whole-of-life policies are from people who don’t understand how the policies work.” With this in mind the Financial Ombudsman Service has again reiterated calls for the sales process and associated literature to be more transparent, so as not to mislead consumers from the get-go.