Policyholders of Equitable Life with-profits products from before 1992 are to be compensated, Chancellor George Osborne announced in today's Budget.
Ex-gratia payments of £5,000 will be made to elderly policyholders, with an additional £5,000 available to people on pension credit on the lowest income.
"We're not doing this because we're legally obligated to; we're doing it because quite simply it's the right thing to do," the Chancellor said today.
Poor regulation led life insurance
firm Equitable Life to collapse in 2000 after it lost a £1.5 billion court case. This meant a total loss of £4.3 billion for almost a million pension policyholders.
The Equitable Life Payment Scheme was set up by the government to make "fair and transparent payments" to those policyholders who "suffered financial losses as a result of government maladministration" in the regulation of Equitable Life. It has already paid out more than £535 million to more than 370,000 policyholders.
Previously only people who bought policies on 1 September 1992 or more recently were eligible for the compensation, which amounted to 22.4% of the sum each individual lost.
Generally thought of as being interchangeable with life assurance, but isn’t. Life insurance insures you for a specific period of time, at a premium fixed by your age, health and the amount the life is insured for. If you die while the policy is in force, the insurance company pays the claim. However, if you survive to the end of the term or cease paying the premiums, the policy is finished and has no remaining value whatsoever as it only has any value if you have a claim. For this reason, life insurance is much cheaper than life assurance (also called whole of life).