Some business queries answered

QA: Q I bought a life policy 22 years ago. Every year they deducted a small amount from my direct debit and increased the death benefit, pro rata, for indexation. Last October, I received a letter from them to tell me they were increasing my payments from €188 a quarter to €408 a quarter, a rise of 128 per cent approximately for the same death benefit of €128,000.

I queried the overnight rise and they told me it was a review of my policy and totally because of my age. I am 63 years old. I then told them I did not grow old overnight.

Anyway, I wrote to the financial ombudsman and they found in favour of Irish Life, as they would. I rang them to query their findings and they told me they could not even discuss my case as it was closed.

I asked for an itemised breakdown of their figures and they had not got one figure to give me, nor had Irish Life anything in figures to give me, which I find unbelievable, for a 128 per cent rise.

I suggested it was a figure off the top of someone’s head, as there was no other explanation.

I would love to hear from the thousands of other people affected by their terms and conditions and just how far terms and conditions can apply, as in extorting money from pensioners, or are there any limits.

Mr M. McG., Dublin

AThe first thing it is important to say is that all life companies operate policy reviews – depending, of course, on the small print – not just Irish Life. As the largest player in the life business in Ireland, it is probably not surprising that Irish Life's name tends to crop up more than its rivals when issue emerge with the sector.

Having said that, I have every sympathy with your broader point. Designing insurance policies in such a way that the start-up costs are low enough to make them attractive to consumers juggling with a host of other financial commitments is a business model that is central to the success of the life insurance industry.

My understanding is that you can purchase level premium life insurance cover that will charge the same amount – probably indexed to the consumer price index – over the whole course of your life for a set benefit. However, that premium is likely to be significantly more expensive, which, presumably, why it is not nearly as popular in the market.

I have not seen the small print in your particular policy but I have no reason to doubt that it provides for policy reviews. These are designed to make sure that, financially, your policy is on track – ie that your premiums are sufficient to provide the benefit offered under the policy.

I would share your annoyance that such reviews – and the almost inevitable significant rise in premiums over time – are not one of the policy features assiduously highlighted to potential customers by salespeople.

Technically, there is no reason why such reviews cannot lead to a reduction in premiums to be fair, although I cannot recall ever having come across such a case.

My concern is that you appear to have heard nothing about reviews for 22 years and then faced a call for a sum that more than doubles your premium – by your account solely on the grounds of your age.

Reviews normally take place every five years and you should have been notified of the outcome of each of these reviews, even if they resulted in no change to your premium or benefit.

It does strike me as strange that, if your age is seen now as requiring a massive premium increase, the same issue would not have required some adjustment in premium at some point over the past 22 years.

It also seems crystal clear that Irish Life in this case has done very poorly in explaining its actions to you.

On the basis of the information you say you have received, it would be very understandable that you would think the insurer had simply plucked a figure out of thin air.

However, such reviews are actuarial processes where a range of factors are taken into account – including your age and such matters as whether you smoke, for instance, or have long-term health issues.

In the most simple terms, there are weightings allocated to different factors so that the insurer can assess when it expects you to die – on an actuarial basis – and what its financial commitment is in funding the agreed lump sum benefit.

Nonetheless, the inevitable outcome of this process, as you are discovering, is that people in retirement on diminished income eventually find themselves priced out of the market by virtue simply of the passing of time.

Some would argue that this effectively amounts to a waste of years of financial outlay in premiums, but it should be said that you have, in large part, been paying for the peace of mind that, in a worst case scenario, your dependants would have some financial security.

It is only fair to point out that the financial ombudsman has found in Irish Life’s favour. Contrary to your instinct, the ombudsman’s office has a deserved reputation for integrity and independence in dealing with consumer complaints against companies in the financial services sector.

It is also fair to point out that the office has strict procedures in place in how it handles current and past complaints. It is quite possible that this precludes them discussing details of cases on which it has already ruled, as they might otherwise find themselves overwhelmed in dealing with issues on which they can no longer act.

What you really should consider is whether you need the €128,000 life cover provided under this policy.

You state you took out the policy 22 years ago. Presumably, at that time, the financial commitments that you needed to provide for in the event of your untimely death were very different. After all, under the revised policy terms, you are facing an annual outlay of €1,632.

Beyond your letter I do not have any details of your personal circumstances. However, at 63, it is reasonable to presume that any children you have will no longer be dependent on you for financial support – or at least not to the extent they would have been 22 years ago. Also, in those 22 years, you may well have had time to build up savings and or a pension that means you have stronger financial underpinning than you did at that time.

On top of that, you need to look at life cover that you may have through other avenues. For instance, many employers provide death-in-service benefits, essentially a form of life cover. If you do still have a mortgage, this almost certainly will have a mortgage protection policy attached to it. Again, this will ensure that, in the event of your death, your mortgage will be paid off and will not be a burden to those you leave behind.

You may also have other, cheaper life cover in position.

Please send your queries to Dominic Coyle, QA, The Irish Times, 24-28 Tara Street, Dublin 2, or by e-mail to dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice. All suitable queries will be answered through the columns of the newspaper.