Insurance companies may, as a general rule, charge policyholders for early surrender of their investment as long as the amount charged is justified by the costs involved.

This ruling by the Court of Appeal in Warsaw affects virtually all unit-linked life insurance policies in Poland. Some insurers charge 100% of the policy value for surrender in the first year of the policy, due to relatively high remuneration of agents selling that type of insurance.

On 4 February 2011, a clause containing the early surrender charge was entered in the register of unfair contract terms in consumer contracts. Under Polish law, businesses may not use clauses appearing in the register in their model contracts and general terms and conditions.

However, the Court of Appeal in Warsaw has ruled, while examining similar clauses used by another insurance company, that the imposition of an early surrender charge is not necessarily an unfair contract term, as long as the amount of the charge can be justified by the costs connected with early surrender that are incurred by the insurance company (ie costs of execution and administration that would have been covered by premiums paid after the date of early surrender).

The Court's decision is final.

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The original publication date for this article was 16/07/2012.