Beware the fox in the henhouse

Thursday 28 October 2004

The Government has consistently branded banks as a rapacious, profiteering cartel. Hence the rationale for Kiwibank. Can something similar be said about life insurance companies?

By The Landlord

Unfortunately the evidence says yes. From a consumer's perspective this sector is evil. Of more intrigue perhaps is why and what can be done about it. But first consider the facts, and be patient, the list is long.

Many of us might recall those dogs called endowment policies. These products bundled life insurance with retirement savings so that on maturity the holder could receive a lump sum or annuity until death.

The companies employed an army of agents to flog this stuff with the agents' fees being deducted from contributions in the initial years.

Net result for the holder was that the surrender value of the policy would plummet substantially but on the promise that as retirement approached all the value would materialise.

Fascinatingly though, the companies went to inordinate lengths to ensure you couldn't possibly evaluate what annual return they were making on your contributions.

The popular means of obfuscation was to award bonus points which, according to the marketing department's theory, reflected the value of your return already made, but measured in dollars at policy maturity.

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