The Worst Life Insurance Policy Ever Written

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A poorly thought out insurance policy may have Aviva France on the hook for hundreds of billions of euros – and that’s for just one policyholder, twenty-five-year-old Max-Hervé George. George holds a policy that, bizarrely, allows him to make investment decisions retroactively based on last week’s prices, resulting in nearly 70% annual returns through 2007 when the policy bought for 50,000 francs in 1987 was valued at €1.4 million.

If the policy is upheld in French courts, Dan McCrum at the Financial Times estimates that it could already be worth €92 million and that it could be worth more than a €100 billion in fifteen years.

Aviva trying to fight the claims in court, without much success

It’s hard to imagine what justification was given for the Fixed Price Arbitrage Life Insurance Contract offered by L’Abeille Vie to some of its select clients back in the late ‘80s. Instead of investing in one of the life insurance company’s funds or building a diversified portfolio, it allowed clients to look at last week’s returns and decide which one their money would be invested in retroactively. L’Abeille Vie is no more, but through a series of mergers and acquisitions George’s policy is now the liability of Aviva France.

Most of these policies appear to have fallen by the wayside. Since the life insurance policies were sold decades ago some of them must have been collected, and a bait-and-switch tactic tricked many policy holders to agree to a change for a 100 franc bonus. Getting rid of the ones that remain will be far more costly. In 2007 French courts agreed that George’s contract was worth €1.4 million, but Aviva continues to fight the claims without much success. It’s not clear how much George’s contract is currently worth, and it’s not clear how much it would take to buy him out even if Aviva wanted to. So far, Aviva has dozens of rulings against it including one from France’s highest court, so the risk is very real.

“After everything I just want to go for the maximum of justice. I don’t want money, I just want my contract,” said George.

George’s life insurance contract could be worth as much as Aviva France

So what exactly would the ‘maximum’ be? Under the original terms George is even allowed to add more capital to his life insurance policy if he chooses, so you could argue that it worth an arbitrarily large amount of money (assuming George can always borrow at less than 68% interest, or whatever the annualized returns currently look like). It’s actually capped at the value of Aviva, and presumably all of Aviva’s other stakeholders would want some sort of compensation, but that only moves the value of the policy from ‘arbitrarily large to ‘absurdly large’.

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