If you are among the 20,000 or so people who have purchased a Canada Life with-profit savings policy in the last few weeks in anticipation of free shares, then you should pay attention to a warning included with the 15-day cooling off notice the company must send new customers.

In the notice Canada Life has reminded new policy-holders that the savings plan they have just bought is a long-term commitment and should not be encashed before maturity as it has little or no value in the early years. The company has reiterated that there are no plans to seek a public flotation and such reports are speculative.

The minimum premium for this product was doubled to £50 after Christmas in the vain attempt to stop speculation. The rumours, which began in Canada, have been fuelled by previous successful flotations of other mutual insurance companies and building societies and the payout of free shares, the most recent here being the Norwich Union flotation last summer.

The risk for the 20,000 speculators is that if Canada Life goes public in a couple of years, the temptation will be to lapse the policy and pocket the shares. It is reckoned that the industry-wide lapse rate for these kinds of savings policies is 20 per cent over the first three years. Because of the front-loaded charges, there is little or no value in the policy in the early years and premium contributions will be lost. If someone who is paying the minimum annual contribution of £600 does receive shares worth, for example, £1,000 in two year's time, they will need to keep paying into the policy for at least another five years in order to record a profit.

The standard lapse rate scenario may not happen right away in this case because of the prospect of free shares. Canada Life can expect premium income of £12 million in year one, £24 million in year two and £36 million in year three if all these new customers hang onto to their policies in anticipation of free shares. One thing that would have helped dampen this unprecedented buying spree is automatic disclosure of all commission and other company set-up charges, and a clear warning at point of sale of the dangers of encashing a policy before its breaks even.

But until new disclosure and transparency regulations are finalised by the Department of Enterprise Trade and Employment (due out this Spring), there will continue to be people who are unaware of the real costs or implications of what they are buying and sales intermediaries who will keep them in the dark.