The early surrender value game

10-year savings plan - with-profits

Top companies

NFU Mutual

Equitable Life

Standard Life

Scottish Widows

Commercial Union

Surrender value

end of year 1

1,200

1,170

1,118

1,093

949

Bottom companies

Royal Insurance

Tunbridge Wells

RNPFN

Sun Life of Canada

Medical Sickness

0

0

115

171

180

Average

589

10-year maximum investment plan - unit-linked

Top companies

Equitable Life

Standard Life

Scottish Widows

RNPFN

Medical Sickness

Surrender value

end of year 1

1,178

1,118

1,093

996

874

Bottom companies

Abbey Life

Allied Dunbar

Hambros Assured

Scottish Equitable

Sun Life

0

0

259

298

363

Average

639

Based on investment of pounds 100 a month, starting age 30

Investment funds assumed to grow at 7.5% a year

Do companies really want their policyholders to keep their contributions going until their policies mature? Most insurers probably do prefer to see payments kept up for the whole period.

But are some maximising their returns in the early stages by combining high charges with heavy surrender penalties in the first few years?

For these companies, there could be a positive advantage if few customers stay on to maturity and a large number lapse. Any insurance company with both low early surrender values and a high lapse rate is clearly taking much of its profit at an early stage.

The summary tables (above) for two types of 10-year savings plan show the best and worst surrender values.

Unfortunately, companies are sensitive about publishing lapse rates and these are not yet generally available. But Mr Chapman says if there is a high lapse rate and a low early surrender value, it is a cause for concern about the company.

Mr Chapman points out that those considering investing with such companies face the double risk of the early loss of their money and of being sold an inappropriate policy.

In Singapore, companies with high lapse rates have not been allowed to recruit more sales staff until their lapse rates improve. Maybe such shock treatment could be adopted in the UK.