Customer highlights need for industrial policy review

WITH the three month Irish Life strike dragging on the company has informed its Home Service customers that it is making arrangements to collect the premium arrears. normally collected on a weekly basis, by the striking salesforce.

This interruption in Irish Life's Home Service or industrial branch division may be costing the company heavily in loss of sales, but it is not necessarily the worst thing to happen to many of its customers who should be using this gap in collection to review their home service policies and assess whether they provide good value for money.

Industrial branch insurance is a throwback to the days when the lack of social insurance benefits and notoriously low wages meant that many working people didn't bother to use bank accounts or other financial services. The insurance salesperson coming to their door to collect life insurance premiums was often the only way they could save to pay the cost of their funeral expenses or leave a token amount to their relations. What few people who own such policies are told, or understand, is that because the cost of collecting the usually modest premiums every week is so high, there is a cap put on the investment value of their savings fund. A standard maximum return is usually in the region of 2.5 per cent.

One family seriously reconsidering its Irish Life policies is the M family who include a middle aged couple from Dublin and their 22 year old son. Though not well off, this family owns its own home, has some savings and bank and credit union accounts. The son is an apprentice, working mainly with an uncle, a successful tradesman. As long standing industrial branch customers who first began taking out policies in their youth for pennies a week, £50 a month is now being contributed by the son, who is the father of two young children.

The parents hold a single, whole of life "Lifesaver" savings policy, purchased independently of the Home Service, with life cover now worth £11,400 on their joint lives.

When the son left school and turned 17, Mrs M convinced him that he should take out a small savings policy. The Home Service recommended a £5 a week cash plan which would pay him a guaranteed £1,000 after year five and a further circa £1,540 at year 10, or a total cash return of £2,540. The policy would include £4,000 death benefit. Though not pointed out at the time, total contributions would amount to £2,600.

When young Mr M's children were born, nearly four and two years ago, it was decided that a small life insurance policy should be taken out on both of them with the father as beneficiary. The grandmother describes the policies as "funeral insurance" and insisted on the purchase because she and her husband had lost their only daughter nearly 20 years ago and they were unable to meet the cost of her funeral.

Though the family had not specifically asked for a savings policy, the Home Service official sold young Mr M two separate savings policies for his children at a cost of £2.50 each per week or, in total, £20 every four weeks. The policies included £2,000 worth of life insurance at the end of the 10 years the company also guaranteed to pay each child £1.430 (a total of £2.860). Total contributions would amount to £2.600 providing a 10 year cash return of £260.

In the summer of 1995, with his second baby due, young Mr M decided that it would be a good idea if he took out some more insurance with his partner as beneficiary. Once again, the Home Service official was consulted. For £10 every four weeks, or £130 a year, he sold the young father a 15 year life insurance policy with death benefits of £15,000 and an investment return of approximately £920 at maturity. Young Mr M was now paying £50 a month, or £600 a year, to Irish Life for four separate policies.

The investment return from the savings policies is not particularly good. Had the £40 he was paying into his own and his children's savings policies been put into An Post's Instalment Savings Plan, we have been told that he would have had a better return. (Life cover is not included with any An Post savings plan).

Had he put the £40 every four weeks into the credit union, he would not only have been earning an annual return of approximately 6 per cent, but he could have borrowed against the funds at highly competitive rates and received automatic death benefits.

Worst of all, however, is the poor value which these policies have provided in terms of life insurance. The main purpose of the policies taken out on the children, Family Money was told, was to pay for funeral expenses. The cost of £2,000 worth of life cover for to years on two infants is so small (because the risk of their dying before age 10 is so minute), that companies cannot make any profit on its sale and therefore must combine the cover with a savings policy, in this case, an expensive Home Service one. (One source suggests the real cost is about 50p a month.)

The £10 a month that young Mr M is paying for his £15 000 protection policy is nothing short of a scandal. For £10 every four months he could have purchased a life insurance policy from Irish Life worth approximately £110,000.

Irish Life's Home Service division has defended these particular policies against our charge that they reflect poor value and were inappropriate to this young family's needs. The company says that with the exception of the £15,000 protection policy, they were designed and sold as savings policies with heavy emphasis on guaranteed returns.

Senior Irish Life executives Family Money spoke to last week about this case and the wider issue of industrial branch business say they are trying to address the issues of high costs and poor investment value. If and when the striking salesforce returns to work it will have to choose between selling Home Service products and collecting the premiums or becoming personal financial advisers selling insurance through the direct debit payment method.

The Home Service officials will in the future be required to do a fact find which will establish whether the costlier home collection method is still appropriate for them: customers with bank, building society, credit union or post office accounts will be encouraged to switch to that method of payment and better value regular insurance policies.