LIFE INSURANCE (INTERESTS ON BENEFITS) BILL (Hansard, 19 February 1975)

§ Mr. Russell Kerr (Feltham and Heston)

I beg to move, That leave be given to bring in a Bill to require the payment of interest on delayed payments of life insurance benefits. Although not of earth-shattering importance, this Bill will, I believe, correct an existing anomaly which arises from time to time in life insurance. At present, when a policy holder dies or when the life on which the insurance policy is based comes to an end, the beneficiary, often a widow in rather straitened circumstances, frequently needs every penny available, since the capital sum due to her under the policy will most likely be much reduced in value as a result of inflation.

The beneficiary is dependent upon the insurance company in the matter of how soon he or she will be paid out after the insurance claim is made. No doubt in the majority of cases there is no particular delay in meeting a claim and the widow goes off thankful that her widowhood has been taken into account by her dear departed spouse, albeit on a scale considerably less in most cases than originally contemplated. But this is a somewhat idealised version of what happens when we come down to concerted examples. What if her husband, though suitably aware of his moral obligations in the event of his wife becoming his widow, happens to be rather untidy in his habits, does not place valuable documents such as life assurance policies in safe places and, as a result, the policy about which he has talked to his wife over the years is nowhere to be found when he dies? What if the policy is stolen or "tidied up" so that it disappears from sight or is lost for a lengthy period?

Or, what about the situation, where, though her husband was careful in his habits, unfortunately he employed as his legal adviser a man who was idle and incompetent and who, far from offering aid and comfort to his client's widow, neglected even to advise her that she should promptly claim on the life assurance policy referred to in the will? As a result, the widow would forgo a considerable 1346 amount of interest—close to 1 per cent. a month nowadays or, say, £500 per annum on a £5,000 policy—which she may well need in the years ahead.

There is the case where husband and wife do not exchange family information of this kind, or where the wife leaves "all that" to her husband. In those circumstances she may well be unaware that a policy is available to be claimed upon, and she may, consequently, overlook the matter, especially if the husband did not discuss his will with her before he died.

There can be a number of circumstances in which substantial delay occurs in paying out a claim. It is sometimes due to the dilatoriness, or worse, of the insurance company, and sometimes to other reasons of the kind I have mentioned.

The important thing about delay, however brought about, is that what may be a large sum of money is left unclaimed in the coffers of the insurance company and, one way or another, earns interest for the company. I believe that interest on this sum of money should accrue to the benefit of the beneficiary and not to the company if delay occurs.

My Bill specifies that the company paying out has one clear calendar month after the death of the policyholder to complete the documentation that must accompany the paying out of an insurance policy but, from then onwards, the capital sum insured will automatically be enhanced by the payment of compound interest at current Bank Rate on the policy, until it is finally cleared.

The basic purpose of the Bill is to avoid a serious loss of money to the beneficiary if any delay should occur, for whatever reason, in the discharge of the policy. At the same time, the Bill removes from the insurance company any temptation to delay payment on the policy so as to help the funds of the company at the expense of the beneficiary.

Some hon. Members may say that this kind of protection should not be necessary, that people should be able to insist on their rights without being mollycoddled by the law. If any hon. Members incline to this view, may I remind them that the shock produced by the death of a loved one can, in some cases, be quite traumatic and some people emphatically 1347 do need protection of the kind indicated in the Bill at such a time.

It is regrettable that the astronomic interest rates applicable today should account in some measure for the need for this Bill. But whatever level they reach, up or down, does not destroy the principle embodied in my Bill, that delay in the paying out of a life assurance policy should not be to the financial disadvantage of the beneficiary once the first month after death has passed.

I am confident that the overwhelming majority of hon. Members in all parts of the House will be in sympathy with the objects of the Bill and I therefore commend it warmly to the House.