It is the season for taking out life policies and starting pensions, and this year there are new rules, known as "disclosure" regulations, governing the sales process. This is good news for consumers who like to be well-informed but won't make any difference to those whose eyes glaze over when they see the words "terms and conditions".
Like anything else, the more you understand about the subject, the more interesting it becomes. The information that will be provided to prospective life assurance and pensions purchasers can be divided into three main categories:
information about the policy/ pension;
charges; and
replacing existing policies/ products.
Whether you are dealing with an independent broker, a tied agent or an employee of an insurance company, the salesperson must, by law, give you certain key information in a standard format. According to the Irish Insurance Federation (IIF), the rules apply to all types of life assurance policy. This includes policies providing financial protection in the event of death, serious illness or disability, regular savings, and lump sum investments. Personal pensions and retirement products are also included. A different regime applies for members of employers' pension schemes. The information provided will run to several pages, possibly 10 to 12 pages of an A5 booklet, and should describe the main features of the product.
In the case of a life policy, you will be able to see clearly what happens if you cash the policy in early or stop paying premiums. Other points to look out for are whether returns are guaranteed, whether the premium may be increased during the term of the policy and how the policy works. In addition, the client will receive two tables of figures, which should be studied carefully because they show estimated future values, the effect on your policy of charges and how much commission the salesperson will get. You will be able to see how many years it takes for the policy to break even, and how evenly charges are spread.
If it is not possible to get specific figures for the policy you are purchasing, you will be provided with generic figures. The policy-specific figures will be sent out with the "cooling off" letter. The financial consequences of replacing an old policy with a new one will also be spelt out in the "cooling off" documentation. If you are switching from the net to gross taxation model, the financial adviser should advise you and illustrate how this is in your favour.
You will both be required to sign a declaration stating that this has been done. This element of the disclosure regulations has been included to make sure customers are not moved from one policy to another at their expense and for the benefit of the broker - a practice known as churning. The new regulations are viewed as a positive development by the IIF. Ms Jennifer Hoban, life manager at the federation, said disclosure would promote a more competitive market as consumers would be able to compare like with like more easily. The IIF has produced a consumer information leaflet explaining the implications of the disclosure regulations and the tax regime for life assurance customers. The brochure is available through www.iif.ie or direct from the IIF.
