Question
On 24th December 1985 My father took out a life insurance policy in his and my mum's name designed to pay out £100,000.00 on second death to assist with Inheritance Tax payments. Maturing after 29 years.
I believe it was a Trust Fund Policy in mine and my sister's name and so the payment made would not be part of his estate.
In January 2000 dad became unsure of the policy and asked for Death Claim illustration. This gave possible death claim value of £52,971.95.
He asked the company to reassure him of the value on death and he was sent a letter stating "this policy is designed to pay out a minimum sum of £99,000.00 until 24 December 2014".
My dad died in 2006 and mum died in March 2011, the company have only paid out £71,459.17.
We have queried this and have been told the policy had a temporary decreasing insurance element (not mentioned before) and final bonus rates have fallen in recent years.
My solicitor will argue this on my behalf but what is your advice please. We appear to have lost £30k in 10 years and none of this uncertainty was explained to dad when he asked the question for this reason.Answer
Apologies for the delay in replying, life's been hectic lately for various reasons.
I'm struggling to work out exactly what type of policy you father took out. The usual route for life insurance to cover inheritance tax is a whole of life policy - the reason being the policy lasts until the day you die (assuming you keep paying the premiums), so it's guaranteed to payout, even if you live for longer than expected.
Given his policy was due to mature after 29 years it was obviously not whole of life, so more likely to be some sort of 29 year plan paying a minimum agreed amount on death during that time, with the potential for more or a payment on maturity (if still alive) depending on investment performance. The money was likely invested in a 'with-profits' fund, which aims to smooth market ups and downs.
With profits investment performance has been poor over the last 10 years, so any extra amount over and above any minimum guaranteed payout will almost certainly have been less than originally expected. Whether or not the original projections were unrealistic is open to debate, but it's difficult to get compensation for poor investment performance unless the advice was inappropriate (e.g. a high risk investment is sold to a low risk investor).
Of more concern is the conflicting information given by the life insurance company regarding the level of cover. Having received a letter stating the minimum level of cover was £99,000 it's fair to assume this would be the minimum guaranteed payout on death during the policy's term. But this is at odds with the death claim value given in 2000 and eventual payout.
I'd start by looking at the original policy documents to find out exactly what the policy is and how much it promised to payout on death.
If the policy did include a decreasing element and did not have a £99,000 minimum guaranteed sum assured then the payout received may well have been correct. But you can certainly question the letter that mentions £99,000 and whether the original advice was appropriate (assuming your father received advice) as this type of policy doesn't sound especially sensible to cover an inheritance tax liability - especially if your father was not made aware of any decreasing element.
But if the policy document does confirm a £99,000 minimum guaranteed sum assured then you should have a valid claim. You may not even need a solicitor in that case as it should be black and white.
Good luck sorting this out and please feel free to ask any follow up questions below.
On 24th December 1985 My father took out a life insurance policy in his and my mum's name designed to pay out £100,000.00 on second death to assist with Inheritance Tax payments. Maturing after 29 years.
I believe it was a Trust Fund Policy in mine and my sister's name and so the payment made would not be part of his estate.
In January 2000 dad became unsure of the policy and asked for Death Claim illustration. This gave possible death claim value of £52,971.95.
He asked the company to reassure him of the value on death and he was sent a letter stating "this policy is designed to pay out a minimum sum of £99,000.00 until 24 December 2014".
My dad died in 2006 and mum died in March 2011, the company have only paid out £71,459.17.
We have queried this and have been told the policy had a temporary decreasing insurance element (not mentioned before) and final bonus rates have fallen in recent years.
My solicitor will argue this on my behalf but what is your advice please. We appear to have lost £30k in 10 years and none of this uncertainty was explained to dad when he asked the question for this reason.Answer
Apologies for the delay in replying, life's been hectic lately for various reasons.
I'm struggling to work out exactly what type of policy you father took out. The usual route for life insurance to cover inheritance tax is a whole of life policy - the reason being the policy lasts until the day you die (assuming you keep paying the premiums), so it's guaranteed to payout, even if you live for longer than expected.
Given his policy was due to mature after 29 years it was obviously not whole of life, so more likely to be some sort of 29 year plan paying a minimum agreed amount on death during that time, with the potential for more or a payment on maturity (if still alive) depending on investment performance. The money was likely invested in a 'with-profits' fund, which aims to smooth market ups and downs.
With profits investment performance has been poor over the last 10 years, so any extra amount over and above any minimum guaranteed payout will almost certainly have been less than originally expected. Whether or not the original projections were unrealistic is open to debate, but it's difficult to get compensation for poor investment performance unless the advice was inappropriate (e.g. a high risk investment is sold to a low risk investor).
Of more concern is the conflicting information given by the life insurance company regarding the level of cover. Having received a letter stating the minimum level of cover was £99,000 it's fair to assume this would be the minimum guaranteed payout on death during the policy's term. But this is at odds with the death claim value given in 2000 and eventual payout.
I'd start by looking at the original policy documents to find out exactly what the policy is and how much it promised to payout on death.
If the policy did include a decreasing element and did not have a £99,000 minimum guaranteed sum assured then the payout received may well have been correct. But you can certainly question the letter that mentions £99,000 and whether the original advice was appropriate (assuming your father received advice) as this type of policy doesn't sound especially sensible to cover an inheritance tax liability - especially if your father was not made aware of any decreasing element.
But if the policy document does confirm a £99,000 minimum guaranteed sum assured then you should have a valid claim. You may not even need a solicitor in that case as it should be black and white.
Good luck sorting this out and please feel free to ask any follow up questions below.
Read this Q and A at http://www.candidmoney.com/questions/question560.aspx
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