One would think a long established insurance group with US$362 billion (£222 billion) assets under management would know which way the markets are going, but even the best of us make mistakes it seems and I am not talking about football or goalkeeping. A long standing client wanted to provide a sum for his children so that when they inherited, there would be some cash to pay the Inheritance Tax. Probate cannot be obtained until this tax is paid and the Executors of the will don’t have any authority until they have probate. Without insurance, this Catch 22 situation can be managed if:
* the estate is liquid and cash used or investments sold to pay the Inheritance Tax or
- the executors borrow from a bank but this can be difficult
Client wanted a single premium policy to solve this and the best one around at the time was a single premium whole-of-life policy from General Accident. Plenty of regular premium policies for this sort of thing but single premium ones are quite rare – not the sort of business most IFAs do every week. Premium was about £14,000 with the six-figure sum-assured payable on second death (when both parents had died) with the sum-assured guaranteed for 10 years. These passed and the surrender value stayed about the same. Recently this dropped by 40 per cent and the client who works in the City asked why? pointing out that markets were UP by about 40 per cent in the last 18 months or so. The problem is that once the surrender value has disappeared, then further premiums will be needed to maintain the cover. Life cover gets more expensive as you get older and premium increases when you are planning to retire soon are not helpful. Reasonable explanation might be just this (higher mortality cost) but this is not mentioned and would not explain a huge drop in the surrender value in one year. It really looks like a smash and grab raid on a long-standing customer.
The complaint is quickly acknowledged but the answer talks of market falls over 18 months and fairness to other policy holders? Check my stats again and the markets have gone up over this period. Another letter to Aviva brings a reply three times longer than the first one but still refers to market falls? Sadly, this looks like a formal complaint to the insurer and then to the Financial Ombudsman Service http://www.financial-ombudsman.org.uk/ if Aviva won’t come clean here. The former looks like it might end up within the Financial Services Authority which in turn is going to end up as a subsidiary of our central bank – Bank of England. Looks like someone has been studying O level Economics, but at least things will then be the right way round.
Aviva is a collection of many insurance companies it has taken over down the years, with about 30 different with-profits funds in varying degrees of health and one has to wonder if someone is robbing Peter to pay Paul? We shall see.
Feeling like some missionary, I find myself in Essex speaking to over 40 would be pensioners as a volunteer for TPAS The Pensions Advisory Service www.pensionsadvisoryservice.ork.uk - not to be confused with another TPAS Tenant Participation Advisory Service www.tpas.org.uk Early arrival allows me to talk to the lady organiser but the PowerPoint slides have not been loaded and my memory stick is full, so George has to wing it. All goes well and I am told to stop talking after an hour having handled several questions. Feedback shows 17 people thought the talk was pitched at the right level, 16 thought it too advanced while 1 member thought it was too basic – probably the guy at the back of the room who glowered at me the whole time. These presentations are free to employers who if interested, should contact The Pensions Advisory Service (Paul Hays).
I nearly fell off my chair moment of the week is Jeremy Warner’s excellent piece on BP http://blogs.telegraph.co.uk/finance/jeremywarner/100006277/why-obama-should-be-thanking-bp-not-demonising-it/ Barack Obama should be thanking BP!