Compulsory Life and CI Insurance - Is This Legal?

Alligator1

Hi,

My friend has asked me to look in to whether she can claim any insurance money back on a business loan she took out 12 months ago and I wondered if anyone on this board can advise me?

She took a business loan for £220k to pay off her then mortgage, buy out her ex husband and put some money in to expanding her business. Lloyds TSB said they were willing to give her the loan but said she had to take out life and critical illness insurance with them.

I have read all the documents including the KFI and it says that they will advise on insurance products only from their own range and make a recommendation based on her needs.

There was and still is more than twice the equity in the property to pasy off the loan in the event of death and CI so my friend said she did not need this as she has no dependents but was told it was a condition of the loan. Does anyone know if this is legal?

Secondly, the loan she took was only over a 2 year period as she is currently selling parts of the property as building plots and paying all the money from the sale of these off the loan. However, the insurance policy they sold her was for a 20 year period. So if she keeps the loan for the full 2 years and then has finished paying it she will be paying for 18 more years of insurance that she has no need for and never wanted.

Hope someone can help me work out if this is legal and if we can submit a claim for her

Thanks in advance.

I have also posted this on the insurance board in case anyone on there can help who doesn't come in here.

di3004

Hi there

I think there is a case here.

There are others who have reclaimed on business loan ppi mis sales.

Maxdp may be able to give more info and advice on this one for you, but if you believe you have grounds for a complaint, then there is no harm in trying to reclaim on this.

Here below is the link to guidelines of reclaiming and templates.

I understand this is for a mate:

Also check on the checklist for any other possible reasons.

Use the template 1, write your own reasons.
They have 8 weeks to respond in full and another maybe required if they do not resolve in your favour in the first response.
http://www.moneysavingexpert.com/reclaim/ppi-loan-insurance

Keep at them until you receive the final response, in the final decision they should give details of the financial ombudsman service (FOS) if your not fully satisfied with the outcome of the complaint.
Post by recorded delivery.

Good luck and post up for help when required.

dunstonh

Lenders can insist on insurances. However, they cannot insist on their own insurance. You are free to take it out where you like.

There is a potential conflict here. The lender may insist on insurance but the adviser has a responsbility to give best advice. With no dependents there is no financial need for life assurance. So, an adviser recommending a life assurance on that basis would be looking at a miss-sale. However, if the lender confirms insurance was compulsary, the adviser is correct to set it up.

However, the term of the insurance should match the liability. In this case, it was set to 20 years and the loan was set to 2 years. This means she was paying premiums based on her age averaged over the 20 years and not 2 years and therefore premiums were higher.

So, whatever happens, the insurance is a mis-sale on the basis:
1 - if lender did insist on insurance then the insurance didnt match the term of the loan and cost more than if it had.
2 - if lender didnt insist on insurance then the recommendation of life assurance was to cover a need that didnt exist

I would put the liability with the financial adviser that set up the life assurance on this one. Not the lender. I know its the same thing but the focus should be on the adviser as they have to justify the recommendation.

Alligator1

Hi,

Thanks for your reply. It confirmed a lot of what I thought.

So if they insist on life or CI does it have to specifially say so in your KFI or other docs? When I took my mortgage it specifically said I had to have buildings insurance but not with them and also specifically said I didn't have to take any other kind of insurance.

I have read all the paperwork for this loan and the insurance and can't find anything at all saying any insurance is compulsory.

As the insurance paperwork is under the Scottish Widows brand do we send the template letter to them or to Lloyds TSB as apparently that is where the advisor came from?

Also, is it worth going to the local branch they came from and demanding to see someone in management there or will that be a waste of time? Didn't know if it would speed the procedure up or not?

Thanks very much for your replies so far dunstonh and di3004

dunstonh

So if they insist on life or CI does it have to specifially say so in your KFI or other docs?

Not the KFI. However, it should in the loan terms somewhere.

When I took my mortgage it specifically said I had to have buildings insurance but not with them and also specifically said I didn't have to take any other kind of insurance.

Mortgages and business loans are totally different from a regulatory point of view. You cant compare.

is it worth going to the local branch they came from and demanding to see someone in management there or will that be a waste of time?

The complaint needs to be dealt with under Scottish Widows. That means the branch manager cant get involved. Also, remember that this is regulatory complaint you are making. Not a service complaint. So, the process is different and the manager will still have to comply with the rules for regulatory complaints.

Alligator1

Thanks for that dunstonh, will get cracking with the template letter later.

Thanks again.