Billet

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Neue leben interest rates

In 2016, the German insurance company neue lebentried, by means of obscure service letters, to encourage its customers to terminate old but lucrative life insurance contracts with the company. The letters from the German insurance company encouraged customers to cancel their life insurance contracts, luring customers to do so with the promise of paying out the accumulated credit balance “at short notice and without income tax.” The letter gave the misleading impression that cancelling the contracts was a particularly worthwhile offer. However, according to the Federation of German Consumer Organisations, neue lebendid not sufficiently point out the disadvantages of terminating the life insurance contracts and was in clear violation of the insurers’ obligation to provide advice to their clients.

 

For most consumers, a cancellation of these contracts would have been very disadvantageous, because they usually contained high interest rates, unlikely to be obtained in today’s markets. Indeed, the letters were sent primarily to customers who had concluded life insurance contracts before 2005 – at a time when interest rates of between 2.75 and 4 per cent were still common for life insurance contracts. If a similar customer took out a life insurance contract today, they would get much lower interest rates. As many as 30,000 such letters were intended to be sent by the insurance company to its customers. However, following a written warning to the insurer by the Federation of German Consumer Organisations, neue lebenagreed to stop sending the letter to customers.