Monday, 3 December 2012

Zurich unbundles insurance from pensions - at last!

I'm pleased to see that from 14th December 2012, Zurich Life are ceasing to offer life insurance, specified serious illness cover, waiver of premium and income protection benefits bundled into the one pension policy.  If you want these benefits, you'll have to buy them in a separate product. 

Why is this a good thing?  Because bundling of insurance products into investment or pension policies is not at all transparent in terms of cost.  You pay one premium (usually per month) into the pension policy and with this premium, you buy units in your chosen fund(s).  If there are insurance benefits bundled with the policy, each month units are cancelled to pay for the insurances. 

The sting in the tail is that the cost of the insurances is not fixed - the numbers of units cancelled can and will get bigger as you get older.  Worse, you're not notified as the cost of the insurance is increasing.  So if you continue paying the same pension premium year in, year out, a smaller and smaller percentage of the premium is actually going towards your eventual pension. 

Credit to Zurich Life for finally getting rid of this opaque practice. 

A far better idea is to have a separate policy for your insurances which is a fixed cost so at all times you know what your insurances are costing and how much is going into your pension and never the twain shall meet.