PRUDENTIAL - Changes to Life Cover Rates

Hi

I got a letter out of the blue today too and I am in same position and share your views

I had a 23 year endowment which is all done and paid up and gone and I have been offered £150

Begs the question-how is payment calculated ?

Call me a cynic but normally people only pay if they have been told they must or they do so to mitigate larger loss that could come later

Maybe others know more?

Owly

Was this just a policy with reviewable premiums? It sounds bit like it.

Life insurance, of necessity, involves making assumptions about what people's life expectancy will be, and what will happen to life expectancy over long periods (decades). (It also involves assumptions about what investment returns will be over that period - as a lot of the profit in life insurance comes from the returns on investing your premiums over the 30 years you hold the policy, rather than from the cash value of the premiums themselves). Like all predictions of the future, these assumptions aren't always correct. Insurers can deal with the risk that the assumptions prove to be wrong in a couple of ways.

The first is that the insurer basically sucks up the risk that their assumptions will be wrong, and sells you a policy with non-renewable premiums. You agree at the start that you will pay, say, £10/month for £100K of cover to last 25 years, and your premium remains at £10.month for the next 25 years, whatever happens. If the insurer notices after 10 years that people are dropping like flies, or that investment returns aren't what they hoped for, that's tough luck on the insurer and they just have to swallow the loss. Obviously this means that if the insurer's assumptions are wildly out they could lose a lot of money, so to compensate for this the premiums for this type of policy tend to be a bit higher.

Alternatively they can offer you a reviewable policy where the premiums are a bit lower to begin with, but the insurer has the right to review them every few years and change them if the market as a whole isn't working out as they expected. (They still can't change them on the basis of your own personal circumstances - so they can't cancel your policy or hike the premiums to unaffordable levels just because you've been diagnosed with cancer).

So if after 10 years the insurer found after that life expectancy wasn't increasing as fast as they'd originally expected they would be able to increase your premium going forwards. If you didn't want to pay the higher premium you could cancel the policy and look elsewhere for life insurance if you wanted to. What the insurer still couldn't do, however, is backdate the increase, ie demand that you cough up the extra premiums that you "should" have been paying over the last 10 years.

And by the same token if the insurer found after 10 years that people were actually living longer that they originally expected they might offer you a reduction in your premiums in future (have they done this?). However it wouldn't follow that you'd been ripped off or that you were entitled to a refund on the premiums that you'd already paid - the premiums were based on the isnurer's best assumptions at the time, and they were what you agreed to pay at the start of the policy. And if the insurer can't retrospectively increase your premiums, you can't really demand that they retrospectively lower them.

So it sounds like it's nice that they've offered you some money as a goodwill gesture, and if you query it they might offer you a bit more to keep you happy, but it's still a goodwill gesture, not a refund that you are entitled to.

(This assumes that it is simply a change in the market or underwriting criteria, and not a genuine case of overpayment, eg where the insurer originally told you that the premiums would be £150/month, but has actually been taking £160/month from your direct debit. Obviously in that situation you would be due a refund.)