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- 4.6 Investment: A Tortuous Passageway to a Tortured Meaning — The ‘Creaming Off ’ Process
4.6 Investment: A Tortuous Passageway to a Tortured Meaning — The ‘Creaming Off ’ Process
With the hindsight knowledge, that there is NO INVESTMENT during the first year and that Irish Life ‘cream off’ the entirety of the first year’s Premium payments to them, let us now apply ourselves to the task of decoding this fact from the Policy Documentation.
Let us therefore enter the LABYRINTH through the passage titled ‘INVESTMENT’. (Refer to Document 6C of Appendix 1/6.)
Paragraph 10(a) –––– INVESTMENT
| (1) |
While premiums continue to be paid under the Policy the company shall credit Units to the Unit Account on the first day of each month. The Number of Units so credited shall be such that the resultant increase in the value at Offer Price of the Unit Account shall be equal to the product of the Regular Investment and the appropriate Investment Factor. |
Question: What is a Unit ?
| (2) |
Paragraph 2(d) defines a ‘Unit’ as a ‘Premium Unit’ of any Fund. |
Question: What is a Premium Unit ?
| (3) |
From Paragraph 2(c): the term ‘Premium Unit’ shall be interpreted by reference to the resolutions referred to in sub–paragraph (b). |
Already we have come to a DEAD END in our understanding of the definition of INVESTMENT, as the term ‘Premium Unit’ is not delimited within the Policy Documentation.
Question: What is the Unit Account ?
| (4) |
Paragraph 2(l) states : The ‘Unit Account’ at any date means the Sum Total of Units in all Funds attaching to the Policy In this case there is only one Fund ––– the Homeway Mortgage Fund (Series 4). |
Question: What is the Offer Price ?
| (5) |
Again from 2(c) : the term ‘Offer Price’ shall be interpreted by reference to the resolutions referred to in sub-paragraph (b). |
Again we have come to a DEAD END in our understanding of a second parameter essential to the definition of INVESTMENT, the term ‘Offer Price’ not being delimited within the Policy Documentation.
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Note! Thus far we have encountered two non-delimited parameters (the ‘Premium Unit’ and the ‘Offer Price’) in our equation for the definition of INVESTMENT. In Logic this makes a nonsense of the definition of INVESTMENT based on the parameters DEFINED within the Policy Documentation. But the object of this particular exercise is to find the covert mechanism by which Irish Life activate their ‘creaming off’ of the entirety of the first year’s Premiums.
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Question: What is the Regular Investment ?
| (6) |
Paragraph 2(i) states : The ‘Regular Investment’ shall relate to the initial premium and any increase thereon and shall be an amount equal to the appropriate percentage, in accordance with the table below, of the initial premium and any increase thereon. |
|
Method of Premium Payment
|
Appropriate Percentage
|
|
Direct Debit Remittance
|
100%
|
|
Other than by Direct Debit Remittance
|
98%
|
This means that, where Premium Payments are by Direct Debit mandate, the Regular Investment is equal to 100% of Premiums paid to Irish Life.
Note! Apart from the terms not delimited within the Policy Documentation (i.e. those whose interpretation requires reference to the 'resolutions'), nothing so far is at variance with the PRE–CONTRACT representations of INVESTMENT by both First National and Irish Life or with the contents of the SCHEDULE, i.e. it is still our understanding that 100% of Premiums paid to Irish Life are INVESTED in the Homeway Mortgage Fund (Series 4).
But, if someone is paying Premiums by a means other than by Direct Debit (e.g. by cash or cheque) then only 98% of premium payments get beyond this point, i.e. there is a 2% of the entire Premium Payments ‘cream off’ by Irish Life, by applying the Policy Documentation Definition of ‘Regular Investment’.
This is the first DECODED element of potentially ‘Unfair Surprise’ that we have encountered in the LABYRINTH that is the policy Provisions, Privileges and Conditions. I use the qualification ‘potentially’ because with our own contract the payment of Premiums was by Direct Debit Mandate and it may be the case that, for someone paying their premiums by a means other than by Direct Debit, Irish Life / First National give written notification PRIOR TO CONTRACT of the fact that there will be an immediate deduction by Irish Life of 2% from all their Premium Payments.
If they don't give such prior notification, then such a 2% deduction is contractually invalid.
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Question: What is the Investment Factor ?
| (7) |
Paragraph 2(j) states: The ‘Investment Factor’ applicable to the initial premium or any increase thereon shall be determined from the following table. |
|
INVESTMENT
|
FACTOR
|
|
During first twelve months following the date the initial premium or increase thereon first becomes payable
|
During Subsequent Periods
|
|
0
|
0.96
|
The above table indicates that during the first year the ‘Investment Factor’ is Zero. It also indicates that during the first year of any increase on the initial premium, whether by the investor’s own choice or because, during the course of the policy, the policy’s failure to achieve sufficient growth may mean that the Final Value achieved could be likely to fall short of the Mortgage Loan Repayment Value, the ‘Investment Factor’ applicable will also be zero.
Note! Many similarly structured Investment Contracts automatically apply (or request that the investor sanctions) a fixed percentage ‘Step Up’ increase to their investment premium at the end of each year.
We have finally arrived at the parameter (the ‘Investment Factor’) that (we can conclude with the hindsight knowledge that there is no investment in the first year and 96% investment from the second year onwards) is intended by Irish Life Assurance to be the activating mechanism for their ‘creaming off’ process.
But how has this mechanism been incorporated into their Policy Conditions Definition of ‘Investment’?
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From (1) above, the paragraph 10(a) Definition of Investment, through (2), (3), (4), (5) and (6) above, we can now write the DECODED policy definition of INVESTMENT as follows:
While premiums continue to be paid under the Policy, the company shall credit Premium Units to the sum total of the Units in the Homeway Mortgage Fund (Series 4) on the first day of each month. The Number of Premium Units so credited shall be such that the resultant increase in the value at Offer Price of the sum total of the Units in the Homeway Mortgage Fund (Series 4) shall be equal to the product of 100% of the Premium Payments and the appropriate Investment Factor.
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In the above definition the terms ‘Premium Unit’ and ‘Offer Price’ are indeterminate from the Policy, their meaning to be determined from the resolutions.
As with the policy definition of ‘Encashment’ (see Section 4.4), we have been led to a DEAD END in the Policy Documentation as provided.
However, notwithstanding this fact, the statements by Irish Life (almost two years POST CONTRACT), that ‘during the first year there is no investment’ and ‘from the second year onwards there is 96% investment’, leads us to the conclusion that it is the ‘Investment Factor’ that is the intended parameter by which Irish Life activate their ‘creaming off’ process within the terms of the Policy.