Halifax sold life insurance for a 9 year old?

Mousey95

Hi All,

I'm hoping to find some general advice to get me started on this issue (if there is an issue that is!).

My husband's little brother has a few thousand pounds from when their Dad died and it is invested in a Halifax Guarenteed Investment Plan. He turned 17 this year and their Mum gave him the latest statement which he has shown to us.

The money was invested in 2004 by their grieving Mum and has made £50 since then until May this year.

The latest statement also says that 'This plan also provides life cover'. He was born in 1995 making him 9 at the time the policy was taken out.

I haven't yet seen any other key docs or statements to give me more info but it seems to me a bit odd that a) he has made so little on the plan and b) he has life cover provided by the plan (presumably since the beginning of the plan though I don't know that definitely).

Anyway, I'm wondering if there are grounds for a mis-selling claim of some kind and am posting in case anyone has any experience of a similar situation or knowledge or advice that may be applicable and useful to his case. Would be greatly appreciated if so.

Many thanks in advance

weighty1_2

If my memory serves me correctly the Halifax Guaranteed Investment Plan is an investment bond which guarantees in the event of death to repay a minimum amount of the amount invested minus any withdrawals, irrespective of stock market performance.

The main purpose of the plan is as an investment arrangement, not to provide life cover.

The chances of a miss-sale based on the plan including life cover. I think it's between zero and nought percent.

In relation to not making any money from it, well that's not surprising based on investment returns in the last few years. It may have been doing quite well until the credit crunch and all hell breaking loose. That the risk of the stockmarket I'm afraid and is no grounds for complaint as investments can go down in value as well as up yada yada yada

forgotmyname

Its probably a part of the plan whether you need it or not. I guess the same way your insurance policies cover you for million £ lawsuits.

Not sure if its just me or do others think, Why on earth would i need that for my contents insurance?

Will my tiny 6inch black and white TV fall off the table 10" off the floor and maim someone for life?

Just something that was included with the plan, Whether you needed it or not.

My daughter used to get £40+ a year interest on her savings account, Now its a couple of £.

Interest on savings are small change compared to a few years back.

Investments can be worse.

Also i presume the mum was named on the document so the cover may have applied to her?

dunstonh

Halifax sold life insurance for a 9 year old?

What do you think is wrong with that?

but it seems to me a bit odd that a) he has made so little on the plan

You may have heard of the dot.com crash in the early part of the millennium and more recently of the credit crunch and global recession. It basically wiped out the returns of the last decade on many types of investments. Plus, its Halifax. Their investments have never been any good.

and b) he has life cover provided by the plan (presumably since the beginning of the plan though I don't know that definitely).

He doesnt have life cover in the sense you seem to think it is. It is invested in the life funds tax wrapper.

Life funds (investment bonds) are a tax wrapper (like ISAs, pensions etc). They are particularly used in trusts such as those for children and grandchildren.

I'm wondering if there are grounds for a mis-selling claim

You havent identified any basis of mis-selling in your post. You do appear not to understand tax wrappers and have jumped to a few conclusions which are not right. However, that doesnt make it a mis-sale.

Mousey95

Thank you for your well considered advice.

Is it mis-selling to encourage putting the money into a high-risk stock related instrument rather than a low-risk deposit related account instrument?

Given that the stock market always has slumps and booms it seems a high-risk investment when putting the money away for a child to have when he turns 18.

I would have thought that the issue of risk should have been discussed with a financially naive person. Perhaps it wasn't compulsory then as it is now?

Could you please give me a brief explanation of what you mean by a tax wrapper?

Personally I do think the life insurance aspect is wrong too.

Thanks again for your time.

weighty1_2

Who said the person who invested the money was "encouraged" to put it in stock market funds as opposed to a deposit account following the adviser led fact find? No basis for mis-selling unless you can prove the investor did not want a stocks/shares based investment and the risk would definitely have been covered in the paperwork.

Seeing as the investment term would be 9years then this is a perfectly acceptable time frame to even out any up and downs in stock market performance, in general. Normally anything over 5-years can be seen as suitable for stock market investment.

The issue of risk would almost certainly have been discussed.

An investment bond is a non-qualifying life insurance policy and as such is afforded certain tax benefits, such as a 5% tax free return of capital per annum.

You do not pay for the life insurance - it is not like an endowment - therefore the life insurance aspect is not wrong

dunstonh

Is it mis-selling to encourage putting the money into a high-risk stock related instrument rather than a low-risk deposit related account instrument?

Stock related investments are not high risk and actually it can be just as much a mis-sale to put it in deposit and leave it subject to inflation risk and shortfall risk.

Halifax have a range of funds covering most risk profiles. Typically they tend to be in middle to lower range and multi-asset. It will almost certainly not be 100% equity but something near the bottom of the risk range.

Given that the stock market always has slumps and booms it seems a high-risk investment when putting the money away for a child to have when he turns 18.

9 years is more than suitable for investments. Minimum term is generally considered 5 years.

I would have thought that the issue of risk should have been discussed with a financially naive person. Perhaps it wasn't compulsory then as it is now?

It would have been discussed and more importantly, it would have been documented and a report issued. A key document in any complaint.

Could you please give me a brief explanation of what you mean by a tax wrapper?

Investments can be held directly or within a tax wrapper where the tax treatment and laws apply differently. ISAs are a tax wrapper. Pensions are a tax wrapper. Investment bonds (life assurance) are a tax wrapper. If you hold an investment fund unwrapped, then it is taxed a certain way. If you hold the same investment fund in a tax wrapper it is taxed a different way. Unwrapped investments are subject to capital gains tax and income tax. Pensions get tax relief on contributions for example, ISAs have no further liability for tax. Investment bonds are not subject to capital gains tax, not added to income tax each year (deferment is allowed) or can be held in trust for minors. The latter being a key reason why many investment bonds are used.

Personally I do think the life insurance aspect is wrong too.

Why? By law, to get the benefit of the life assurance tax wrapper, there has to be an element of life assurance. Typically it is a very nominal amount like 101% or even 100.1% of value.

jamesd

Mousey95 wrote: »

Is it mis-selling to encourage putting the money into a high-risk stock related instrument rather than a low-risk deposit related account instrument?

No, but it may have been a breach of duty if the person responsible for the trust - the mum, I assume - used a deposit account instead of investments.

Mousey95 wrote: »

Given that the stock market always has slumps and booms it seems a high-risk investment when putting the money away for a child to have when he turns 18.

A nine year duration is fine for use of investments. The main UK stock market is up more than 50% including dividends in the last ten years.

Mousey95 wrote: »

Personally I do think the life insurance aspect is wrong too.

It's not something to worry about. You just don't understand yet that it is not used primarily for the life assurance aspect, but for the tax protection it gave. The insurance payout might have been perhaps 1% on top of the total amount invested, just sufficient to qualify under the tax rules to make it an insurance product and get the investment protection that it provides. There's something similar in place in pension-specific funds as well (though not standard funds just held inside a pension account).

While there's nothing at all wrong with using an insurance bond and investments in this situation - it's a good use - that doesn't mean that the performance of the specific Halifax investment product was good. But investment performance isn't something that is subject to mis-selling claims unless the investment type was inappropriate. And it wasn't inappropriate in this case, even though the product hasn't performed very well.

Using more traditional investments inside the investment bond would probably have worked better. Guaranteed Investment Plans tend not to offer good value for money, particularly when sold by high street banks and building societies. But not offering good value for money isn't a mis-sale.

It's also possible that the costs of setting up and operating this product have been uneconomic and might have used a fair bit of the capital. Don't know what those costs are so can't say.

The sale looks to be fine, it just looks to have been a product offering bad value for money. Unfortunate but consumers buy products offering poor value for money all the time.

Mousey95

Thanks again for your time and answers.

Why would a 9 year old with no income need a tax wrapper?

addedvaluebob

If this was a Halifax bond then they should also have covered the option of nat savings so that the mum could make a decision based on informed choice and would be beneficial for a minor as a non taxpayer. Raise a complaint with Halifax comparing what happened to the money in the bond with what it would have been worth if left on deposit or invested in nat savings

dunstonh

Why would a 9 year old with no income need a tax wrapper?

Plenty of reasons. Minors are not automatic non-taxpayers. Life assurance wrappers can also be placed in trust.