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CHAPTER 10

THE GRAVY TRAIN

10.3.2Further Clarification of the Risks associated with DEPENDENCE on Bonus
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You will recall from Chapter 4 (see Section 4.10.8, Bonus: An Absolute Necessity — Definitely Not a Gratuity), where we showed that both First National and Irish Life were in breach of their respective duties to disclose material facts relating to Bonus known by them to be likely to affect the decision of my wife and I to enter into an Endowment Mortgage Contract with them.


(1)

They failed to disclose the material fact that the Projected Surplus After Loan Repaid could only be achieved (based on the assumed net growth rate of 9.75% p.a.) IF Bonus Units were added over the last 5 years of the Endowment Policy.

(2)

They failed to disclose the material fact that the Early Repayment Term was wholly DEPENDENT (based on the assumed net growth rate of 9.75% p.a.) on Bonus Units being added, over the first 3 years and 8 months of the last 5 years of the Endowment Policy Term in the case of the 15 Year Endowment Mortgage (see Appendix 1/3) actually chosen by my wife and I, and over the first 3 of the last 5 years of the Endowment Policy Term in the case of the 20 Year Endowment Mortgage Quotation (see Case 1 of Appendix 1/2) represented to me at my pre-contract meeting with First National.

(3)

They failed to disclose the material fact that, based on an assumed net growth rate being achieved (this being 7% p.a. in the case of the 15 Year Endowment Mortgage actually chosen by my wife and I), the Repayment of the Mortgage Loan itself was wholly DEPENDENT on Bonus Units being added over the last 5 years of the Endowment Policy.



We then highlighted the fact that the failure to disclose these material facts ensured concealment of further undesirable circumstances that could befall the borrower opting for an Endowment Mortgage.

They effected concealment of a Major Risk associated with the value of a claim under the Endowment Policy;
it is only in the latter stage of the Endowment Mortgage Contract, if the assumed growth rate is achieved, that the Endowment Mortgage Fund value will begin to equate to the Repayment Mortgage Cumulative Principal Repaid value, for equivalent net cash outflows.


This Risk of financial harm is now clearly evident from the year-by-year comparison
(see Analysis Table 7 in Section 10.2 above) between the Repayment Mortgage Cumulative Principal Repaid and the Endowment Fund Value.



We also highlighted the fact that, by their non-disclosure of these Major Risk Burdens, intrinsic to their Endowment Mortgage Contract by reason of its DEPENDENCE on Bonus, they effected concealment of a Major Risk-Free Attribute of the Repayment Mortgage, in that NO SUCH DEPENDENCE EXISTS.

We now see the full import of this Deception.


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As already related in Section 4.9.1 (Bonus: An ‘Apparent’ Additional Benefit), depending on the individual Life Assurance Company, the manner in which Bonus is applied will vary between the various different types of Policies. In the instances cited in this website-book, Bonus is allocated to the Policy over the last five years of the Policy; and it is expressly stated that it will be so allocated.


But, with other Policies, Bonus may be allocated differently: it may be allocated annually (Annual Bonus) and/or it may be allocated at the Policy Maturity Date (Terminal Bonus).


Also, there may be no guarantee that such Annual and/or Terminal Bonus will be added to the Policy: it may be dependent on extraneous factors, or it may be added at the discretion of the Life Assurance Company.


As related in Section 4.10.8 (Bonus: An Absolute Necessity — Definitely Not a Gratuity), all such matters constitute material facts likely to affect the borrower’s / investor’s decision to enter into the Endowment Mortgage Contract. The critical significance of these material facts to the borrower’s / investor’s decision as to choice of Mortgage Type must now also be clearly evident.

 

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