Reducing life insurance Payout

Chaddyboy

Hi, firstly I amm new here and seeking advice. Myself and my wife took out life insurance In 1995. This policy was for £20 monthly, and a payout of £20,000 on the occurrence of the first of us dying. We paid the monthly premiums for over twenty years quite gladly not giving a second thought as to what was about to happen. The payout figure was reduced to & 15,000,then £11,000 and now £7,000. Has anyone else had this experience. I have taken this up with the financial ombudsman, but I wanting to know if this is a common practise by the insurance company's.
Regards
Chaddy

Sandtree

Life insurance can be written with guaranteed premiums or reviewable. The later the premiums are fixed normally for the first 10 years and then reviewed and rereviewed every 5 years there after. Generally you get the choice of either increasing the premiums to maintain the same level of cover or reducing the cover to maintain the same levels of premiums depending on which you prefer.

Reviewable premiums are more suitable for some customers whereas guaranteed premiums are better for others.

Old_Lifer

If you read the documentation you received when you look-out your policy you will find that the premiums are reviewable.   The cost of the life cover increases with age and increases ever more rapidly as you approach retirement and beyond.   In the early years of the policy a review would not result in an increase in premium or a reduction in the sum assured, as the existing premium would be sufficient to purchase the life cover   but later in life, with the cost of providing the cover increasing each year with age,  the premium is no longer sufficient to purchase the existing level of cover  and you are faced with either increasing the premium or suffering a reduction in the sum assured.  This will happen again at each following review.

Sadly,  I cannot see any point in complaining about this as it would have been stated in the policy document and in the sales literature when you took-out the policy.   In this case,  it seems you have come across this feature of your policy on 2 previous occasions.

dunstonh

Has anyone else had this experience.

Yes.  Very common with whole of life assurance plans with an investment element.   Investment returns in the decades prior to the 90s had been double digits average each year.   Whereas today, its more like 5-6%.    although inflation is much lower so net, it is about the same.    This means returns have not been able to pay for the increased cost of life assurance as you are older and at the 3 or 5 year review points (varies with providers) they need to adjust either the premium or sum assured.

You bought in 1995 but that type of plan was already on its last legs at that point.   Although tied companies kept offering them for a number of years, they were already going obsolete via independent distribution channels.

 I have taken this up with the financial ombudsman, but I wanting to know if this is a common practise by the insurance company's.

The plan is doing exactly what it is allowed to do and is a consequence of the reduction in inflation and interest rates and investment returns.    You should review whether you need the plan or not or whether a modern plan is possible to replace it.