Something to hide

Insurers have ways of concealing the true costs of policies

The rules introduced last year to ensure that prospective policyholders are given details of charges they will have to pay are a tremendous improvement on what went one before.

But there is still considerable scope for simplifying the information and closing loopholes that allow some companies to hide the true costs of their policies.

One simple way in which companies do this is simply by not taking part in surveys aimed at comparing different charges. When Money Marketing published its recent survey on unit-linked investments, about 20 companies declined to supply the information requested of them.

Among them were AIG Life, Barclays Life, Century Life, Cornhill, Hill Samuel, Irish Life, London & Manchester, Mercury Asset Management and National & Provincial Life (now taken over by Abbey National).

Others were Refuge, Royal Liverpool, Sun Life of Canada and Teachers' Assurance, which has become entangled in disputes with many teachers who were wrongly advised to opt out of their occupational pensions and start private ones.

Some companies, like Barclays Life, said they did not have the resources to meet the survey's tight deadline. In some cases this rings true: Barclays has taken part in previous surveys. Others claim they did not sell the policies concerned any longer. This is also true, but policyholders might still want to know how their savings are performing.

There is, in any case, plenty of scope for massaging the figures, as with-profits policies, show. The supposed attraction of such policies lies in the fact that they "smooth" returns, so that bad performance years are offset by good. However, this makes it near-impossible to tell whether the estimated charges over the lifetime of a policy will be as stated.

This is because between 28 to 65 per cent of a maturity payout is the so-called "terminal bonus". The actual amount has been falling in real terms since the early 1990s.

Unit-linked policies also impose charges that can double the total initial charge from 5 or 6 per cent up to 12 per cent each year. This can be done in a variety of ways including "capital units", which amount to permanently heavier charges made on the first years' contributions.

Other novel cost structures include Scottish Equitable's "specific member charge", whereby extra fees are levied if contributions are halted or reduced during a policy's lifetime. Yet because of unemployment, divorce and the offer of alternative company pension schemes, 8 per cent of Scottish Equitable policyholders stop their payments every year. Hundreds more reduce their contributions.

Scottish Equitable also charges more if a person increases premiums, despite companies constantly urging their policyholders to do so to ensure a decent retirement pot.

Skandia Life operates a similar "contribution servicing charge" based on the principle of penalising policyholders who miss their payments.

Abbey Life, owned by Lloyds Bank, charges policyholders an extra 6 per cent if they stop premiums in the first year, reducing to 1 per cent by year six. By this point, as the actuarial firm AKG points out, most pension holders have stopped their contributions, usually for perfectly genuine reasons.

Sun Life gives policyholders an "extra fund injection" but only between eight and five years before retirement. This boost improves the value of the fund at retirement. It also allows Sun Life to project far lower annual management charges over the entire life of a contract. But given that only 13 per cent of all policies are still kept going after 20 years, the full Sun Life loyalty bonus is paid to one in seven policyholders. Everyone else pays extra.

A similar policy is adopted by Albany Life, owned by US insurer Metropolitan Life.

people Emma Watson addresses celebrity nude photo leak
Katie Hopkins appearing on 'This Morning' after she purposefully put on 4 stone.
peopleKatie Hopkins breaks down in tears over weight gain challenge
Boris Johnson may be manoeuvring to succeed David Cameron
peopleHis band Survivor was due to resume touring this month
Have you tried new the Independent Digital Edition apps?
people'It can last and it's terrifying'
In this photo illustration a school student eats a hamburger as part of his lunch which was brought from a fast food shop near his school, on October 5, 2005 in London, England. The British government has announced plans to remove junk food from school lunches. From September 2006, food that is high in fat, sugar or salt will be banned from meals and removed from vending machines in schools across England. The move comes in response to a campaign by celebrity TV chef Jamie Oliver to improve school meals.
Arts and Entertainment
Life and Style
fashionModel of the moment shoots for first time with catwalk veteran
Life and Style
fashionPart of 'best-selling' Demeter scent range
Tom Cleverley
footballLoan move comes 17 hours after close of transfer window
Alexis Sanchez, Radamel Falcao, Diego Costa and Mario Balotelli
footballRadamel Falcao and Diego Costa head record £835m influx
Life and Style
fashionAngelina Jolie's wedding dressed revealed
Finacial products from our partners
Property search
Money is slipping through our fingers: the UK is falling behind other countries in the amount we put away

How to save money: UK is crashing down the European league table for putting money away

The UK has slipped to 11th in the latest European league table of savers. Rob Griffin checks out the best options

Energy firms found guilty of bad practice could have licences revoked under Labour government

Caroline Flint, the shadow energy secretary, says a Labour government would create a new energy regulator

A student's guide to financial survival: You don't have to drown in debt at university

Fresh from A-level delight, the moment does not have to be soured by students resigning themselves to thousands of pounds worth of debt in three years' time. Rob Griffin sees how to pass the university challenge

'Dismal' eurozone data sparks concerns

European Central Bank chief Mario Draghi is under pressure to launch promised stimulus before the EU slides further
Love but not marriage: property is one area where cohabiting couples are in danger of losing out

How couples can protect their financial interests when cohabiting

People who simply live together cannot assume they have the same rights to each other's assets as spouses or civil partners. Michelle McGagh sees how they can protect their financial interests

India could be jewel in the crown for investors

With a new government and an ambitious prime minister, the country offers the prospect of strong returns. But there may be hiccups ahead, warns Simon Read

Child Maintenance Service to replace Child Support Agency - but is it better?

Reforms to the vexed question of child support payments by absent parents mean extra charges for both sides. Neasa Macerlean reports

Barclays's new life insurance heralds a revolution on the high street

The new product marks a shift towards 'clear, straightforward and standardised' banking products, says Simon Read

How to protect your assets if the stock markets begin to head south again

Are you worried about your portfolio? Nick Paler asks fund managers and investment insiders for advice
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Executive Assistant/Events Coordinator - Old Street, London

    £35000 - £38000 per annum + benefits: Ashdown Group: Executive Assistant/Event...

    HR Generalist (standalone) - Tunbridge Wells - £32,000

    £30000 - £32000 per annum: Ashdown Group: HR Generalist (standalone) - Tunbrid...

    Derivatives Risk Commodities Business Analyst /Market Risk

    £600 - £800 per day: Harrington Starr: Derivatives Risk Commodities Business A...

    Power & Gas Business Analyst / Subject Matter Expert - Contract

    £600 - £800 per day: Harrington Starr: Power & Gas Business Analyst/Subject Ma...

    Day In a Page

    'I’ll tell you what I would not serve - lamb and potatoes': US ambassador hits out at stodgy British food served at diplomatic dinners

    'I’ll tell you what I would not serve - lamb and potatoes'

    US ambassador hits out at stodgy British food
    Radio Times female powerlist: A 'revolution' in TV gender roles

    A 'revolution' in TV gender roles

    Inside the Radio Times female powerlist
    Endgame: James Frey's literary treasure hunt

    James Frey's literary treasure hunt

    Riddling trilogy could net you $3m
    Fitbit: Because the tingle feels so good

    Fitbit: Because the tingle feels so good

    What David Sedaris learnt about the world from his fitness tracker
    Saudis risk new Muslim division with proposal to move Mohamed’s tomb

    Saudis risk new Muslim division with proposal to move Mohamed’s tomb

    Second-holiest site in Islam attracts millions of pilgrims each year
    Alexander Fury: The designer names to look for at fashion week this season

    The big names to look for this fashion week

    This week, designers begin to show their spring 2015 collections in New York
    Will Self: 'I like Orwell's writing as much as the next talented mediocrity'

    'I like Orwell's writing as much as the next talented mediocrity'

    Will Self takes aim at Orwell's rules for writing plain English
    Meet Afghanistan's middle-class paint-ballers

    Meet Afghanistan's middle-class paint-ballers

    Toy guns proving a popular diversion in a country flooded with the real thing
    Al Pacino wows Venice

    Al Pacino wows Venice

    Ham among the brilliance as actor premieres two films at festival
    Neil Lawson Baker interview: ‘I’ve gained so much from art. It’s only right to give something back’.

    Neil Lawson Baker interview

    ‘I’ve gained so much from art. It’s only right to give something back’.
    The other Mugabe who is lining up for the Zimbabwean presidency

    The other Mugabe who is lining up for the Zimbabwean presidency

    Wife of President Robert Mugabe appears to have her sights set on succeeding her husband
    The model of a gadget launch: Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed

    The model for a gadget launch

    Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed
    Alice Roberts: She's done pretty well, for a boffin without a beard

    She's done pretty well, for a boffin without a beard

    Alice Roberts talks about her new book on evolution - and why her early TV work drew flak from (mostly male) colleagues
    Get well soon, Joan Rivers - an inspiration, whether she likes it or not

    Get well soon, Joan Rivers

    She is awful. But she's also wonderful, not in spite of but because of the fact she's forever saying appalling things, argues Ellen E Jones
    Doctor Who Into the Dalek review: A classic sci-fi adventure with all the spectacle of a blockbuster

    A fresh take on an old foe

    Doctor Who Into the Dalek more than compensated for last week's nonsensical offering