Whole-of-life policies

How we resolve whole-of-life policy complaints

• Suitability

  Just because the whole-of-life policy was the most suitable product from your product range doesn’t mean you were right to provide it. You could have explained to the customer that you didn’t have a suitable product for their needs.

  If we’re satisfied that another type of life cover would have been more suitable, we might tell you to do one of two options:

  • replace the mis-sold policy with the more appropriate one, or
  • pay the customer compensation

  If we ask you to replace the mis-sold policy, you’ll need to refund any excess premiums with interest. If the whole-of-life plan was cheaper, we’ll usually tell you to reconstruct the plan to the more appropriate one. The customer will then have to start paying the correct, adjusted, premium.

  If we ask you to pay compensation, you use the average market premium for the more appropriate product – at the time when the customer bought your policy – as a basis for your calculations.

  Guaranteed insurability

  Sometimes a business will tell us the customer asked for guaranteed insurability or wanted to vary the life assurance, as needed, with guaranteed insurability in the future.

  If there was little or no need for guaranteed insurability, we’ll need to see evidence the customer wanted it. We’ll also have to see evidence that the customer thought it was a key benefit even if there's a limited need for a limited period.

  When term assurance would have been more suitable

  Customers sometimes complain they only needed life insurance for a limited time, but the policy you sold them committed them to paying for life assurance until they die. We’ll look at the facts of each case to decide whether a term assurance policy would have been available and more suitable.

  We’re likely to uphold a complaint if we find that, when you sold the policy, you knew that the customer only needed cover, for example, until:

  • the customer's children were of a certain age
  • another source of guaranteed income, for example, a pension, became available to provide for the surviving partner
  • they’d paid off a mortgage or other fixed-term debt

  Investment risk

  Customers sometimes complain that the underlying fund the policy was investing in was too risky. In these cases, we’ll need to look at:

  • the features of the fund the policyholder paid contributions to
  • the customer's circumstances

• Policy reviews

  Most policies will have review dates. This is when you and your customer can compare the value of the plan with the benefits you’ll provide. We receive very few complaints about non-reviewable policies.

  If things haven’t gone as well as expected, you may ask the customer to increase their contributions, or suggest reducing the assured sum. We won’t uphold a complaint just because you asked the customer for more money or you told them they’d have to accept a reduced sum assured.

  The customer says they didn’t know the plan would be reviewed

  We’ll consider whether you made it clear at the time of sale that the plan was subject to regular reviews that could lead to increased contributions or reduced benefits.

  Sometimes businesses tell us that the product literature explained the way the plan operated, including the potential for review. But this doesn’t necessarily mean the plan was suitable or that your adviser has acted correctly. We’ll have to look at the available evidence to decide whether:

  • it was a suitable recommendation, and
  • the literature clearly explained what could happen

  The aim of the plan is to provide a given level of life cover, so the result of a review can be highly significant. There could be important reasons why the policyholder needed life cover at a certain level, for example, to pay for an inheritance tax bill. So we may uphold complaints if we think the effects of reviews weren’t made clear. We’ll look at:

  • anything that you or the customer recall from meetings when the policy was sold
  • the product literature
  • any letters sent to the customer explaining the reasons for the business's recommendation

  If we’re satisfied that the review process was explained to the customer clearly, we’re unlikely to uphold the complaint.

  The review wasn’t carried out at the right time

  A customer may complain that you didn’t carry out a review when you said you would. They may say they’d have surrendered the policy – or taken out additional life cover – if they’d known about problems that should have emerged in a review.

  In these cases, we’ll ask you what a review might have revealed, and how you would then have advised the customer in light of those findings.

  If the review would have shown no action was necessary, or the policy was performing as expected, we’ll examine the terms and conditions. We’re unlikely to uphold the complaint if the terms and conditions say your business wouldn’t contact the customer when no action was necessary.

  If, however, you said that the customer needed to change their contribution or the sum assured, we’ll consider what the customer might have done. If we’re satisfied the customer would have surrendered the policy, we’ll usually tell you to pay compensation based on:

  • the surrender value at the date the review should have taken place
  • plus the total amount of premiums paid from the date that the review should have taken place
  • plus interest on those premiums at 8% simple per annum
  • less the current surrender value

  If the current surrender value is higher than the historic surrender value – plus premiums and interest – the customer won’t be any worse off by surrendering the policy. So we won’t ask you to pay compensation.

  We may be satisfied that the customer still needed the life cover in the policy, but would have taken out alternative cover if they’d had a review. In that case, we may make a deduction for the cost of the life cover the policy provides – usually dated from when the review should have taken place.

  Or, we may think the customer – given updated information from a review – may have discontinued the whole-of-life policy. They may have replaced it with another policy, which is now more expensive. If so, we may tell you to pay additional compensation for that extra cost.

  Or, we may believe the customer would have continued to pay into the plan. In this case, we’ll usually tell you to ‘reconstruct’ the plan. We’d want you to backdate it to how it would have been if the review had taken place and the customer had been asked to pay extra premiums to keep the policy on track. We wouldn’t usually expect the customer to repay premiums, but we may consider it fair for them to meet increased costs in future.

  The review was unfavourable

  We often see complaints where the business carried out a review and gave the customer a choice between paying:

  • significantly more money to maintain the sum assured, or
  • the same premium for a smaller sum assured.

  We’ll investigate whether the information given during the policy review was clear, fair, not misleading and in line with regulatory obligations.

  The customer would have taken out a different policy

  We might conclude that, if the customer had fully understood the implications of policy reviews, they might have chosen a non-reviewable policy instead. In these circumstances, we might ask you to reconstruct a non-reviewable policy using whatever assumptions and costs applied at the time of the sale.

  Where your product range doesn’t offer a non-reviewable policy – and the customer can’t get life cover elsewhere – it may be possible to construct one. In that situation you, the business, will pay any extra cost.

  Another option would be for you to rewrite the policy on a ‘minimum’ or ‘standard’ sum assured basis – if you provided this choice. This would help maintain the sum assured for the long term, because a larger part of the premium would go into the investment element of the policy.

  In most cases it won't be fair to ask the customer to pay what would have accrued if the new premium had been in place from the start. But they will have to pay the correct premiums going forward.

  Reconstruction might generate a higher surrender value. So we’d need to be sure the customer still needed the life cover before telling you to reconstruct a policy.

  Non-renewable policies tend to be more expensive, so we wouldn’t take this approach if the customer:

  • didn’t want to pay higher premiums now
  • couldn’t afford the higher premiums now
  • couldn’t have afforded the premiums when the policy was originally sold

  Alternatively, we may ask you what sum assured you could have provided on a non-reviewable, ‘minimum’ or ‘standard’ basis for the premium the customer is now paying. We’d then say you should fix the sum assured at that level and the customer should continue to pay the same premium.

• Life assurance wasn't necessary

  When a customer didn’t need life cover, we’ll look at their personal and financial circumstances at the time they took the policy out.

  Consumers usually buy whole-of-life policies to protect loved ones from financial harm when they die. So, we're likely to uphold a complaint where the customer was young, single and living at home with no dependants.

  Sometimes businesses tell us that a whole-of-life policy is the first rung on the protection ladder and therefore suitable for a customer’s life ahead. We usually hear this when the customer was a young person without dependants or assets to protect – and no need for life assurance at the time they bought the plan.

  If no-one is going to be financially disadvantaged, we’ll look at whether there was another reason for the customer to have life assurance.

  If we decide that the customer didn’t need life cover at all, we’re likely to tell your business to refund all payments, less any surrender value. We’ll also usually tell you to pay interest because – by paying the premiums or lump sum – the customer didn’t couldn’t invest that money elsewhere.

   

  Compensation for investment complaints

• The policy as a way to save

  We also see cases where customers say they took out a whole-of-life policy as a way to save money for the future.

  If we’re satisfied that this was the customer's priority, we’ll look at how much the life assurance element of the plan cost. If these costs were significant – and might affect how well the plan could provide the savings – we’re likely to uphold the complaint.

  If the customer had dependants, or debts that they wanted to protect, we’d take into account how much cover they had before taking out the policy. For example, they might have cover provided by an occupational pension.

• Potential inheritance tax liability

  Sometimes, a customer takes out a whole-of-life policy to cover a potential inheritance tax liability when they die. In cases involving reviewable and maximum policies, we’d expect you to have made sure that:

  • it was suited to the customer’s circumstances
  • the customer knew they may have to pay more in the future to maintain cover for that fixed liability

  We’ll look at whether the policy could continue to provide the cover in the long term. If that was unlikely, we’ll usually uphold the complaint. In most cases, we expect whole-of-life policies that are sold for inheritance tax mitigation to be set up on a ‘standard’ basis and written in trust.