Charlie Weston: Mis-sold whole-of-life insurance policies can mean a nasty surprise as years go by
It is not often you get a bill that have gone up five or sixfold. But that is exactly what is happening with people who took out whole-of-life insurance policies in the last few decades.
Reviewable whole-of-life insurance policies continue until a person dies. They are sold as a combination of a savings plan and life cover.
With these policies premiums are invested in unit-linked funds.
The idea was supposed to be that your money grows at a certain rate. This is supposed to provide an element of protection to the life assurer, and give you a surrender value in the event that you cancel your policy.
If you pay a premium of €100 a month on a reviewable policy, typically €50 of this will go into a unit-linked investment fund, with a further €50 used for the life-cover part of the policy.
However, this tends to change as you age, which means that a higher proportion will be used for life cover the older you get.
However, the policy is usually set up in such a way that there is a review of the premium costs after an initial 10-year period, then every five years for a period, and then every year.
The premium is usually hiked at every review once people move more into their 60s and 70s.
This was not always made clear when the insurance was being sold.
The problem many older people have is that they have not been informed of any review in the premium rates for years.
Then, out of the blue, they get a letter from the insurer telling them the premium is going up by 500pc or 600pc to maintain the level of life cover they have.
In one case, seen by this journalist, a couple were told the premium would go from €60 a month to €375 if they want to keep the same level of cover, with little or nothing due from the savings element of the plan.
Broker Liam Ferguson of Ferga.com said that if the review of a whole-of-life policy is pointing to a big increase in premiums then the savings element of the plan has probably bombed out. He says people in their 60s should ask themselves whether or not they need life cover at all.
For many people, the need for life cover tends to fade out gradually as they approach retirement. Typically the mortgage and loans are paid off, children are no longer dependent, and they are living on pensions.
If they feel they do need life cover, then consider the likes of a five-year term assurance policy, which would be relatively cheap.
The bottom line is that many older whole-of-life polices were mis-sold and there are no easy options for those who have them.
Sunday Indo Business