St James's Place
talexuser
Posts: 3,499 Forumite
This is a story from the Borisgraph that I found hard to believe:
A couple took out a life insurance in 1992 in their early 60s Sum assured £110k when both pass on. Over the years the sum assured has increased to £247k, ~two and a half times. The premiums have increased from £329 a year to £19,235 a year, ~58 times!
The father has passed on, the mother is now 87 and told she can have the £247k on her death if she pays £19,235 a year for the next five years. After 5 years she can still pay £19,235 a year but the payout on death will halve to £123,500. Or she can maintain the £247K payout by premiums of £43,941 a year.
They have now paid in a total of £144k, obviously to carry on they will get back less than they paid in! If they stop paying and cash in they will only get £49k back.
The paper says if the mother lived to 97 they will have paid in £432k, twice the payout of the policy, while St James will have had 27 years of stockmarket compound growth with the money.
St James could not explain the up to 24% a year compound increases in the premiums. Once the paper got involved, St James said NO more premiums would be needed to get the £247k on her death from now on, plus a £500 goodwill payment. But offered no calculations to justify their claim they will now make a loss on the policy, or any growth or fund data.
How many years of premiums went on bonuses before anything got invested I wonder?
A couple took out a life insurance in 1992 in their early 60s Sum assured £110k when both pass on. Over the years the sum assured has increased to £247k, ~two and a half times. The premiums have increased from £329 a year to £19,235 a year, ~58 times!
The father has passed on, the mother is now 87 and told she can have the £247k on her death if she pays £19,235 a year for the next five years. After 5 years she can still pay £19,235 a year but the payout on death will halve to £123,500. Or she can maintain the £247K payout by premiums of £43,941 a year.
They have now paid in a total of £144k, obviously to carry on they will get back less than they paid in! If they stop paying and cash in they will only get £49k back.
The paper says if the mother lived to 97 they will have paid in £432k, twice the payout of the policy, while St James will have had 27 years of stockmarket compound growth with the money.
St James could not explain the up to 24% a year compound increases in the premiums. Once the paper got involved, St James said NO more premiums would be needed to get the £247k on her death from now on, plus a £500 goodwill payment. But offered no calculations to justify their claim they will now make a loss on the policy, or any growth or fund data.
How many years of premiums went on bonuses before anything got invested I wonder?
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Comments
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The problem is not really SJP in the case but the type of product.
Investment backed whole of life assurance plans were commonplace upto the early to mid 90s when they became obsolete after level term assurance and decreasing term assurance plans took over dominance and whole of life plans started to offer non-investment backed guaranteed premiums (whilst going niche at the same time as most people dont have a whole of life need).
The premiums were reviewable after a period (typically 15 years) and reviewed every 5 years thereafter. The life assurance cost was not set at the outset but at the review points. So, naturally, the premiums became more expensive as you got older. Historically, investment returns used to keep up with it and they could be used to cover the increase premiums.
Problems started to occur with this type of plan when we moved from a high inflation boom/bust economy to a more stable low inflation economy through globalisation and the gross investment returns started to fall compared to the decades that had gone before.
as the investment returns were lower, the only way to keep the sum assured was to increase the premiums. The alternative was to reduce the sum assured and keep the premium as it was to find a figure in between.
There was the potential for sales rep manipulation on these plans. As the premium wasnt reviewed for the first 15 years, the rep could lower the investment element and increase the assured making them look better than any competitor product. e.g. agent 1 says you get £xxx sum assured for £y pm. agent 2 coming in after knows they need to beat that, so they divert more of the premium to the sum assured away from the investment and say they can get you£xxx+ sum assured for the same £y pm. You do see a lot of FOS upheld complaints on this type of plan for that reason.
This couple bought theirs in 1992. So, just before it went obsolete. Had they reviewed it earlier, they may have been able to switch to a more modern version with guaranteed premiums and a guaranteed sum assured.
A secondary thing that a lot of these types of plans had was that if you survived to a certain age, the premiums would cease but you would retain the benefits as if you were still paying them. Typically around age 85 with most providers. SJP don't appear to have had that on theirs. So, the freezing of the premiums at age 87 is something that had a whole of market provider been used, would have been done anyway.
SJP don't appear to have found this missold but it does highlight that their versions of products were expensive and poor quality as far back as 1992 (caveat being that is was an earlier brand that morphed into SJP).0 -
Still, refusing to give any examples of typical investment returns or any funds used for comparisons gives the impression that "rip-off" is not enough to describe these practices.0
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The paper says if the mother lived to 97 they will have paid in £432k, twice the payout of the policy, while St James will have had 27 years of stockmarket compound growth with the money.
Life assurance is a pooled book. Not a singular transaction. The profit from a £329 premium in year one won't have compounded to a very large sum.0 -
It would be interesting to see how much a line from £329 in the first year to £19,325 in the last over 27 years from '92 in the all-share would have done, just for a comparison. Obvioulsy I assume they must use a proprotion of bonds for payouts but still.0
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I wonder why they would even have wanted a life insurance policy in the first place? I can understand a policy of a few thousand to cover funerals etc, but surely the vast majority of 60 year olds don't need 100k+ of life insurance?0
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They don't but the sales trick is to say it's to avoid inheritance tax with a trust setup to receive the benefit.greatkingrat wrote: »I wonder why they would even have wanted a life insurance policy in the first place? I can understand a policy of a few thousand to cover funerals etc, but surely the vast majority of 60 year olds don't need 100k+ of life insurance?0 -
They don't but the sales trick is to say it's to avoid inheritance tax with a trust setup to receive the benefit.
Ah - so a policy that starts off cheap, then has enormous contributions later on (near end of life) which then pays into the trust on death, would be just what was requiired. Doesn't really need mush investment growth then. It's real purpose is to evade inheritance tax?0 -
Its real purpose is to provide the provider with an income.0
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Exactly! The psychological hook is that the victim discounts the premiums by 40%, without questioning either the extent of their liability (if any) to inheritance tax or their ability to live on their income after paying enormous premiums later in life.Its real purpose is to provide the provider with an income.
[FONT="]I speak from some experience as my mother fell for this trick (without my knowledge) from St James’s Place when her estate was below the inheritance tax threshold once my father’s unused allowance was added.[/FONT]0 -
Ah - so a policy that starts off cheap, then has enormous contributions later on (near end of life) which then pays into the trust on death, would be just what was requiired.
Near end of life you might have enormous expenses due to care costs, which makes it even more likely that the policy will be cancelled and all the premiums lost.
Tax evasion is illegal.It's real purpose is to evade inheritance tax?
The purpose isn't to avoid inheritance tax. They could just give the money away that they were going to spend on premiums and that would also potentially avoid inheritance tax in exactly the same way.
The real purpose is as per Seabee.0
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