From July, companies must lower their investment expectations, which will make a huge impact on the final figures. Instead of calculating that a policy will at worst grow by 5 per cent a year and at best by 9 per cent, they must now use 4 per cent and 8 per cent to judge a contract's future value.
Companies have been urged to introduce the change as soon as possible. The cut in future projections is based on lower expectations of future growth for endowments. Some insurers, including Eagle Star and Guardian, have already alerted customers to potential shortfalls and advised them to pay higher premiums, based on what they believe the policies will be worth at maturity.
Other companies have been reviewing their policies and were until recently confident that these would repay the mortgage debt. However, insiders acknowledge that, had present growth assumptions been used when a policy was taken out, many policies would have had far higher premiums than is now being paid. More will have to be paid in from now on to make up for that shortfall. Policyholders should ask their insurers about this now - before it-is too late.