Payouts could top ?25,000

Payouts from demutualising insurance companies are increasing, driven by the rise in the values placed upon mutual businesses over the past five years.

Scottish Widows' 1.6m policyholders will collect a minimum £500 in cash once the Lloyds TSB takeover is finalised early next year.

Most can look forward to substantially more, with aver age payouts around £5,900. This is one of the highest life assurance windfalls - around four times the bonus Norwich Union savers picked up when their life company quit mutual status in June 1997.

The big money will flow to 900,000 "with-profits" pension and endowment policyholders whose final payout will depend on the size of premiums and the number of years they have been saving. Some windfalls could top £25,000.

The basic £500 goes to a further 700,000 Scottish Widows members who have other types of life or pensions policies such as unit-linked savings plans or non-profit protection policies.

Policyholders can collect only one payment even if the policy is written "in joint names" with both spouses protected by one plan.

Customers of Scottish Widows Bank, including mortgage holders, credit card holders, and unit trust investors, will get nothing unless they also have a qualifying life or pensions policy.

The pace of consolidation is increasing. When Abbey National took over the poorly performing Scottish Mutual six years ago and paid extra bonuses to with-profits policyholders, it began a trend.

Provident Mutual was bought by General Accident and investors received an average £300 each.

Clerical Medical policyholders received a 6.5% rise on all bonuses when their fund became part of Halifax. Members of Scottish Amicable received £250 in cash and a variable distribution based on the age of the policy and £1,000 in bonuses when Prudential bought the business.

Other mutuals claimed they would not change status. Scott Bell, group managing director of Standard Life, Europe's biggest mutual insurer, said: "Our position is unchanged. Strong and well-managed mutual companies should always provide better returns to their policyholders." Equitable Life also pledged to remain mutual.

Chartwell Investment Management, an independent financial adviser, lists Scottish Provident, Scottish Life, National Mutual, Friends Provident and MGM Assurance as the most likely to convert. Equitable Life could also be hit by a bid if it loses a court case next month over guaranteed annuities.