My Mum's Life Assurance Guaranteed Amount has been decreased - Aviva

emmafudge

Hi, 
My mum took a life assurance policy out with GA Kaleidoscope, now Aviva in 1993 and it was guaranteed to pay out £140,000 on her death.  She has had some reviews in the past on it (I was not aware) and the monthly policy increased to keep the guaranteed amount at £140K, although the increases were not huge.

This year she received a letter saying that to keep the policy at £140k she would need to increase her payments by nearly £500 per month, She currently pays £282 per month, otherwise the guaranteed amount would drop to £134k,   so she was going to pay £6k extra per year to get an extra £6k paid out when she died.

We complained to Aviva, who have said that as mortality costs increase with age the likelihood of further changes being necessary increases.  I cannot quite understand this as if she had died at 70 her estate would have received £140k, yet now she has made another 16 years of payments towards the policy.  Basically her risk of dying is greater so they want more money?

Is there anything else I can do with Aviva, and is it worth taking it further with the ombudsman?

Any help would be appreciated.
Thanks 

dunstonh

We complained to Aviva, 

On what basis?

  I cannot quite understand this as if she had died at 70 her estate would have received £140k, yet now she has made another 16 years of payments towards the policy.  

The type of plan your mum had went obsolete around 1995.   Unlike modern life assurance plans, she has two issues.  Review points (typically every 3-5 years).   This means they look at the investment element and the age of the life assured and if there is insufficient in the pot, they have to increase premiums or offer a reduction in the sum assured.    As she gets older, the cost of life assurance increases.

Basically her risk of dying is greater so they want more money?

Correct.

Is there anything else I can do with Aviva, and is it worth taking it further with the ombudsman?

The plan is doing what it was intended to do.  Indeed, its quite possible that Aviva ran a loss on this for the first 10-15 years as often the person buying the policy set the premium too low leaving it inevitable (albeit with hindsight) that the premium would need to increase.   Plus, people are living far longer than expected when this was purchased in 1993.

Aviva are not doing anything wrong.   

It's an obsolete policy from a different era when people died earlier and investment returns gross of inflation were higher.  A black and white TV in today's world.

Old_Lifer

It is clear from your post that this is a reviewable policy.

The cost of providing the life cover rises with age, gradually at first but increasingly more rapidly each year later in life.  This means that when a review  (usually every 5 years)  is carried out in the early years,  the policyholder will not be asked to pay more if the  premium is  sufficient to purchase the existing level of life cover.    However, later in life with the ever rising cost of providing the life cover, the policyholder will be asked to pay a higher premium or suffer a reduction in the level of cover.  At each following review the policyholder will be asked to pay an even higher premium  or suffer a further reduction in the level of cover.

The policy will become ever more expensive as your mother gets older.   May I suggest that you ask your mother how much life cover she actually needs.

Sadly, I can see no point in your mother complaining,  as she has been faced with this situation before  and is aware that it is a reviewable policy.   The fact the policy is reviewable would be mentioned in the policy document and the sales literature.

Sandtree

emmafudge said:

My mum took a life assurance policy out with GA Kaleidoscope, now Aviva in 1993 and it was guaranteed to pay out £140,000 on her death.  She has had some reviews in the past on it (I was not aware) and the monthly policy increased to keep the guaranteed amount at £140K, although the increases were not huge.

There is a more fundamental question here... does your mum need £140k of life assurance any more? Who is financially dependent on her that will be deprived by her early death?

These days most people look to buy life insurance instead, the payout is fixed, the premiums are fixed and you declare an age that it pays until (often around retirement, mortgage repayment or kids finish uni type of dates). Nothing changes unless you die in which case it pays out or you hit the declared age and the policy ends in the same way your car insurance does after 12 months.

Old_Lifer

Reviewable policies were a new idea only introduced around the mid-1970s.  We have now gone back to doing things the way they were done in the olden days.

Only some policy types were reviewable.      Even after reviewable policies were introduced,  most of  our policies sold had traditional fixed premiums.

Old_Lifer

emmafudge -   Think of it this way:  the size of the sum assured tells us this was primarily not an investment product but was intended to provide a high level of life cover, so there is no large investment pot.   Each month the premium is now being used to purchase  £140k of life cover and the cost of buying the cover will increase each year   If the cost has just gone up by nearly £500 per month, your mother is facing the prospect of a much larger monthly increase at the next review.

emmafudge

Thank you for the replies.  I will pass the responses on to my mum.