Aviva Life - Increasing premium and significantly lower payment on death

dfarry

Hi everyone, sorry for the scant detail, I've not been able to clarify all the events.
My mother and father in law (I'll refer to them as M&F) are carers for mother in laws own mother (I'll refer to her as Nan) who is now 87 and has severe Alzheimer's.  She is basically bed-bound and to be honest probably wont live much longer.  They all live together and the home is basically split three ways as I understand it (there are other complications with this arrangement, no power of attorney etc.... but I'll save that for another thread).

About 20 years ago M&F remortgaged due to concerns about their endowment policy not paying the mortgage (the mortgage is now paid and the home is owned by them all).
At around the same time Nan took out a life policy to cover the mortgage in the event of her death.... she has paid into this since, although her financial affairs are managed by M&F.  I believe the sum payable on death benefit is about £40,000.

Apparently Nan has now received a letter from Aviva, advising her that the death benefit will be reduced to £17,000 unless she dies before the 20th December, Aviva have cited poor economic performance due to Covid-19 (apparently).  Aviva have also said that the payment on death will still be £40,000 if she pays £300 extra a month.

I was a bit astonished when my wife was telling me this, for starters the policy has been effective for 20 or so years and I though the payment of death amount couldn't suddenly be reduced like this.  I thought it would be different to say an endowment policy.

But then there is the issue of Nan, having no capacity to make these decision nor can she pay £300 more a month.  As I understand it M&F and the other 3 siblings are considering paying the £300 per month between them rather than lose £23,000....... it sounds very messy and complicated.  But I do wonder if Aviva have really moved the goalposts... I wonder if other people here have been affected with these large premium increases for life cover.

Thanks for your help.

wjr4

Does she even need the cover anymore? 

dfarry

wjr4 said:

Does she even need the cover anymore? 

I think the policy was started to provide a lump sum on death that potentially could be used to cover the mortgage..... I don't think the policy was ever actually linked to the mortgage (if that makes sense).
Obviously now 87 and very very weak the family assumption was that by inheritance they would gain around £40,000 to be shared equally.

xylophone

the family assumption was that by inheritance they would gain around £40,000 to be shared equally.

If they want the £40,000 they'll have to pay the  increase in the premium  otherwise the premium continues at current rate and the death benefit is reduced?

https://www.cnbank.com/Your_Bank/Education_and_Advice/CNBU_Articles/Why_Did_The_Premium_On_My_Term_Life_Insurance_Go_Up_/

Aretnap

Life insurance policies come, broadly, in two flavours: reviewable premiums and non-reviewable premiums. 

Non-reviewable premiums means that the premium, and sum assured, are fixed for the duration of the policy. The insurer makes an offer at the outset based on their estimates of life expectancy and investment returns over the next few decades, and if those estimates turn out to be over-optimistic (from the insurers point of view) the insurer just has to suck it up.

Policies with reviewable premiums, on the other hand, are cheaper to begin with, but the insurer has the right to modify the premium in certain circumstances at fixed points in time. Generally the circumstances must relate to the market as a whole and not to the specific circumstances of the life assured. In other words they can increase the premium if investment returns are lower than they predicted, or if people in general are dying at a higher rate than they anticipated - but they can't single out nan for a premium rise just because her health is poor and she may not live much longer.

So it will depend on the terms of her policy, but very likely Aviva do have the right to do it.

dfarry

Hi all, thanks for the replies...
Yes it does sound like she had a policy with reviewable premiums.... apparently they have increased in the past but nowhere near this much.
I had never heard of this before, I assumed that you agree a premium and with that comes a guaranteed amount on death, much like a savings plan but with the incentive that if you died sooner family would receive a lump sum towards funeral expenses etc.... but the longer you live the more you pay, the benefits versus payments made are then less.
I'm not sure what they are paying at the moment but judging by the term and the amount being stated by Aviva I reckon they have probably already paid about the same amount.  That seems really harsh hitting old people who have paid into these policies for years with a big premium hike (probably when they can least afford it).
I'd be very surprised if Nan live another year so for the family it would be foolish not to pay it.
Aviva of course a business and I suppose the markets have not been great, but I am genuinely surprised by them doing this.

dunstonh

Yes it does sound like she had a policy with reviewable premiums.... apparently they have increased in the past but nowhere near this much.

Its her age mainly.

I had never heard of this before, I assumed that you agree a premium and with that comes a guaranteed amount on death, much like a savings plan but with the incentive that if you died sooner family would receive a lump sum towards funeral expenses etc.... but the longer you live the more you pay, the benefits versus payments made are then less.

That was only with endowments.  Not whole of life assurance plans with review points.  WOL plans tended to be cheap in the early years but kick in with higher amounts at each review point. 

 That seems really harsh hitting old people who have paid into these policies for years with a big premium hike (probably when they can least afford it).

These types of plans went obsolete in the 90s.    Life expectancy was much lower back then.  She would have been expected to be dead many years ago on 1990s data.    They were a product of their era based on data from that era

Aviva of course a business and I suppose the markets have not been great, but I am genuinely surprised by them doing this.

It doesn't matter who the provider is.   It would be the same across the board.

Old_Lifer

1.  The policy documentation will say that the policy is reviewable.

2.   Given the age,  this  would not be the first time this has happened.    Indeed, a later post on the thread seems to confirm that higher premiums have been requested before.

3.   It is not really anything to do with the state of the stock market  (she is being asked to pay more as there is no large investment pot within the policy)  but is because the  cost of providing life cover to someone in the twilight if life rises increasingly more rapidly each year.   This means that the current premium and investment value within the policy are not sufficient to maintain the existing level of cover.

4.   The cost of the life cover will continue to rise each year and at the next  review the premium requested will be considerably higher.

dfarry

Thanks again everyone for your replies... so a bit of an update...
Aviva asked for a doctors letter to confirm that Nan lacked the capacity to sign/reply to their letter.  This was provided and the siblings asked Aviva if they could sign on her behalf - which they did agree.
Now the siblings have agreed to pay the £300 extra premium between them, however Aviva then demanded that they have Power of Attorney (which they do not).  Aviva has now agreed for them to pay the £300 and will review the policy in one year but at that time they have said that they will need Power of Attorney.
Even if Nan were to die in the next 12 months and the full 40k is payable, with no POA or Will I assume Aviva would say that they have no way/no beneficiary to receive the money?
And to confirm, yes there have been previous reviews but they have not been done regularly or recently.

dunstonh

Now the siblings have agreed to pay the £300 extra premium between them, however Aviva then demanded that they have Power of Attorney (which they do not).

Getting POA is too late now.  It needs to be done whilst the person has mental capacity.

Even if Nan were to die in the next 12 months and the full 40k is payable, with no POA or Will I assume Aviva would say that they have no way/no beneficiary to receive the money?

No.  If the policy is not in trust and there are no other policy owners, then the proceeds get paid into the estate.

And to confirm, yes there have been previous reviews but they have not been done regularly or recently.

Typically, there is a long period at the start. Such as 10-15 years and then its every 3 or 5 years thereafter.

Old_Lifer

If death were to  occur in the next 12 months and the policy is still in force, whatever is the sum assured at that time would become payable and  if the  policy is not written in trust,  that sum assured  would form part of the Estate.     Although you say there is no will,   presumably someone in the family would obtain Letters of Administration so the Life Office will then be able to make payment.

Policy reviews are usually made every five years  and the policyholder may not be aware that a review has taken place if no change in premium is required,    until eventually the existing premium is no longer enough to meet the rising cost of the life cover and the policyholder is asked to pay more