debs7405 asked in Business & FinanceInsurance · 8 years ago

If a life assurance policy was taken out in 1996 why?

after 16 years of paying £25 per month in premiums does an insurance company suddenly contact the 77 year old policy holder and tell them that to maintain the current amount of cover (only £5000) the premiums will need to go up to £50 per month OR they can continue to pay the same but the policy would only the be able to pay out 40% i.e. £2000. Seems immoral.

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  • Tom Z
    Lv 7
    8 years ago
    Favourite answer

    It is not a matter of morality. The policy he or she bought is likely what is called a Variable Universal Life type of policy that does not guarantee the the premium, cash value or the death benefit. What that means is that the policy has an investment risk.

    When the policy was initially applied for projections were made that assumed a certain level of return on the "investments" made within the contract. Apparently everything was going according to the original projections for at least a while. but due to the slowdown in the domestic and global economy the returns have fallen short of the projections.

    Not really an unusual situation because who can reliably predict economic performance over a 17 year period?

    To avoid this the policyholder would have needed to buy a Whole Life policy with guaranteed values.

    Source(s): ...
  • 8 years ago

    It was a term policy, she could have purchased a whole life policy but the premium was likely higher.

  • ?
    Lv 7
    8 years ago

    Because that's the way the policy that they signed up for works. I sold a 10-year term policy to someone a little more than 10 years ago. I tried to talk them out of it, but they bought it anyway. Their premium just went from $100/month to $1,000/month. Naturally, they cancelled it. But, they had to live with the decision they made 10 years earlier.

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