I've paid £49 monthly to London Royal, expecting a £75,000 payout for my children at death. But the payout is really £13,000 – and shrinking
In 1994 my husband and I were advised by our financial adviser to take out a unit-linked life insurance plan with what was then United Friendly (now London Royal Plus). Ever since we have paid £49 monthly, in the expectation our children would receive £75,646 following the second death.
My husband died last year aged 82. I am now 75. In May this year, London Royal sent a letter telling me they failed to review our policy after five years, and then every five years, until my husband turned 70, and from then on annually.
I've been told that if I wish to maintain the final payout, the monthly payment will have to rise to £257. On the other hand, if I choose to continue paying at the same rate as before (though reviewed annually), the final total would shrink to £13,159. The deadline given for my decision was just three weeks.
As there must be many others in my position, I wonder whether there is any advice you might be able to give regarding the best handling of the matter.
Faced with monthly contributions of £256.93 (expected to rise annually by 15%), I shall have little choice but to stop paying in. Is it reasonable to expect compensation for the wasted payments of 18 years at £49 a month? GS, Bristol
Whole of Life policies, which is what you have, were heavily sold by financial advisers, who no doubt pocketed generous commissions. They are insurance policies rather than savings policies – promising a payout on death plus a small "surrender value" if you cash them in. They usually start with affordable premiums, but are then reviewed as they go along.
They were often sold as part of inheritance tax planning, but as with so many financial products of this sort, the capital appears to have been eaten up with the various fees and charges. It hasn't helped that stock markets have underperformed and longevity improved – which is why insurers are raising premiums.
London Royal declined to speak to us about your case, citing data protection, but it has agreed to return payments you have made since April 2010. That adds up to £1,225, along with interest at 8%, amounting to £214.81, plus a cash surrender value as at April 2010 of £670.
So what are your options? As a 75-year-old woman, the life expectancy tables suggest you will live another 12-13 years. If you keep paying in £49 a month, that's £7,644 more you'll pay by the time you are 88. You might think that is worth it, as you'll get a payout of £13,159, but the thing is, you won't. The insurance company will continue to review the payouts, which will continue to fall.
Danny Cox, insurance specialist at Hargreaves Lansdown, told us: "My gut reaction is to can the policy and stop throwing good money after bad."
Consider taking your case to the Financial Ombudsman Service. If you were told it was a savings policy, not an insurance policy, and not warned that you would face potential premium increases, you are likely to have a good case. Generally, these policies were among the worst-value financial products of the 1980s and 1990s.
We welcome letters but cannot answer individually. Email us at consumer.champions@guardian.co.uk or write to Bachelor & Brignall, Money, the Guardian, 90 York Way, London N1 9GU. Please include a daytime phone number.
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