Question: In 1988, I took out a loan with one of the local banks. I was required to issue a life insurance policy and, between the various options available, I took out an endowment policy. I was led to believe that the policy would be paying me a rather handsome sum of money upon maturity in 20 years time. However, at no point, during the purchase of the policy, it was mentioned (verbally or in writing) that the maturity value can be less than that declared. I happened to be reading an article which stated that insurance policies may not pay up the declared maturity value and, upon enquiring with my insurance company, I was told that the maturity value of the policy may vary as this depends on profits made. I was told that the documentation I had been provided at the time did not state that values are guaranteed but, rather, that the values were being quoted as estimates. I believe this is deceiving and constitutes a breach of my rights because I was forced into buying a product which is not likely to deliver on its promises. What are my rights?
Many policyholders questioned the resilience of their life insurance companies in the wake of the financial turmoil that left many investors worldwide uncertain of the future.
It is pertinent to point out that regulation and consumer protection regulations have evolved since 1988 and this is reflected in the quality of the documentation which is available today, as compared to 20 years ago. This does not mean that the documentation used at the time was deceiving or incomplete – one would say that there might not have been as much detailed disclosure as there is today. For sure, the type of illustrations which were given at the time of sale might have been reflective of the typical returns rewarded by life insurance policies at the time. One cannot deny the fact that these same returns now appear to be ‘historic’ due to unsettled economic times. The policy wording would not normally express any guarantee with respect to the value at maturity. The policy quotations, which would normally serve as basis to proceed with a policy, would have indicated the potential returns likely to be achieved over its lifetime. The terms normally used on the quotation would be “estimated maturity value(s)” which cannot be taken as guaranteed amounts.
It is a fact that bonus rates (mostly relevant to endowment policies) are dictated by financial conditions at the time in which they are declared. Depending on the insurer, quotations may show three indicative bonus rates, such as 3%, 5% and 7%. Although the last two scenarios may sound very generous by today’s rates, they might have been realistic at the time.
In respect of the penalties applicable if policyholders cash in their policy prior to maturity date, it is pertinent to point out that a life policy is a long term insurance contract and therefore will penalize those considering an early release. A policy can increase in value if declared bonuses remain buoyant or improve. However, declared bonuses might also be less than those in previous years – which is a major cause of concern for many policyholders. For this reason, it is premature to complain of bonus returns at this stage.
Finally, one must also keep in mind that, during this time, the policy was also giving the complainant life protection. This means that had the complainant died after payment of the first premium given the policy was not pledged in favour of the bank, his/her family would have been paid the value of the sum assured. This means that one’s death would not have left a financial burden on the family following payment of the sum assured, this aspect is most often misunderstood or forgotten by policyholders.
Question: I plan to obtain a loan facility from a bank and I had been asked to purchase a life assurance policy. Do I have to purchase that policy from the bank, if it offers it to me?
In Malta some banks are tied intermediaries of insurance companies and are therefore able to promote and sell life insurance policies of that company. Although banks may provide you with brochures on life policies which they promote, you are entitled to shop around for other policies issued by other insurance companies as long as they meet the bank’s requirement. Ask your bank to provide you with details of their requirements. Banks cannot require you to purchase only products which they are promoting and you should feel free to refuse any offer from the bank in this respect.
