1976: All The President’s Men
Sometimes I really do wonder about the level of “financial journalism” which seems largely to simply frighten people and create an environment where people are simply too worried about doing the wrong thing that they end up doing nothing. The Daily Mail website, which calls itself the financial website of the year (though precisely why, how many were even considered and who presented this award is anyone’s guess). I also know that as a source it is unlikely to rank very highly, and is only like to provoke anger, but I’m told a lot of people do actually read the Daily Mail.
Anyway, on Wednesday they published a story about a couple who took out a whole of life policy with Providence Capitol in 1994. They recently had a policy review and the Insurer wanted to increase their £50 monthly payment for cover of £18,429 to £92.77 or the cover would be reduced to £9,800 which they were shocked to see. They state that the adviser didn’t tell them that the premium could rise, or would be reviewed.
I have some sympathy, if it is true that they were not told that the increase could happen that is disappointing. However they are attempting to remember a conversation from 1994 and frankly I doubt that they can. In any event the policy document will also state what the policy does, not to mention that they would have had a review of the premium before now (these sorts of whole of life policies are reviewed every 10 or 5 years). However the “journalist” who is now warning 4.5million policyholders of the same fate is as badly advised as Mr and Mrs Spratt.
Financial planning needs reviewing. Making a decision about how much life assurance you wanted in 1994 and not reviewing it is plainly daft – sorry to be so blunt. In addition, the cost of cover has fallen dramatically over the years, so reviewing may save money. In addition, there are lots of types of life assurance policy and a good adviser will outline which is the most appropriate. I would question why someone aged 70 even needs life assurance anyhow, unless it is for a possible inheritance tax bill, in which case a joint-life second death whole of life policy can be ideal (in the right circumstances).
However, I do have sympathy for the lack of clarity. I helped many people get out of these policies many years ago. Many of the “advisers” correctly said that the policies could be adjusted between an investment element and life assurance element, to take account of a family’s needs. This is true but misleading, though frankly I doubt that they knew this themselves. The amount of investment is minimal and is really only there to avoid the need to increase premiums in the future. There are only really two premium options – minimum (pay the least amount for the maximum cover, but the premiums will be reviewed and highly likely to rise). This can be a very good option, if there is a reasonable chance that you don’t want the cover for ever, but want a flexible policy, so that cover can be adapted. Alternatively you pay a standard premium schedule, which relies upon investment growth, but if achieved should mean that premiums are maintained at the same level. It’s a risk, it is also much more expensive (perhaps ten times as much). So, given the options, most would take the risk of something cheap and flexible that they need now, but perhaps the need for cover in 10 years time is reduced anyway (an ageing family and reducing liability). Certainly if this was arranged as though it were a savings plan, it is a very poor way to save money indeed. Sadly because these policies paid higher commissions, I suspect that many “advisers” did not really consider alternatives properly. I should add that we have always removed commission from protection policies (which reduces the premiums).
However, surely there is a limit to how long an Insurance company or adviser can be held responsible for something that was done 18 years ago. It is not as though the couple had not had the opportunity to think, read and ask questions and more importantly decide whether the cover was still necessary. Indeed the regulator now makes it part of its Treating Customers Fairly mandate that people should not have restrictions on changing things fairly easily. This is relatively new, but it is operational today. We learn from our mistakes and progress is made on the back of them.
What really annoys me though is the sensationalist journalism. Illustrations are illustrations they are not predictions. Anyone that has an illustration can see that there will be at least two possible outcomes showing different rates of growth. The purpose of this is to show the impact of different returns (which are clearly not guaranteed). I’m sure that like me you don’t possess a crystal ball that will tell you what returns will be achieved over the next 20 years, or frankly over the next 20 seconds. It is amazing to me that journalists are not regulated as if ever there was a case for misinformation, it is when advice is taken out of context, by which in this instance I mean the circumstances that Mr & Mrs Spratt were in during 1994 and the available financial products, markets and regulation available at the time. So please, can we have some responsible journalism, that has the possibility to make society better? The world has moved on enormously which is why IT IS IMPORTANT TO REVIEW YOUR PLANNING.

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