Think twice about surrender values

CONSUMERS buying long- term life insurance policies should give more weight to the penalties for early surrender, the Office of Fair Trading says, writes Vivien Goldsmith.

A report on surrender values, published yesterday, concludes: 'Given that many, if not most, consumers will not hold long-term life products until maturity, it is important to ensure that they are alert to the likely returns from early surrender at different times, and to the wide variation in early surrender values.'

New rules will force life companies to show the impact of early surrender in money terms by the beginning of next year. Some of the charges relate to life cover, but the biggest impact comes from commission payments to salesmen.

The report, based on research by the actuaries Alexander Clay & Partners, looked at 60 large life insurance companies. An average 25-year unit- linked endowment policy with premiums of pounds 50 a month would have a surrender value of pounds 157 after one year, pounds 516 after two years, and pounds 2,105 after five years, when pounds 3,000 would have been paid in premiums.

The best surrenders in each of the first five years come from Equitable Life, which delivers pounds 3,244 after five years. Many policies deliver nothing in the first year, including those of Abbey National Life, Britannia Life, Guardian and Sun Life.

MGM delivers nothing after the second year and also takes bottom place after three years. Pearl is the worst performer after five years with a surrender value of pounds 1,248.