Whole of life insurance mis- sold or not?

daviddee

Hi just wondering if anyone had any thoughts on our situation.

I will apologise in advance for this extremely long post and hope it doesn't put people off reading it and considering if they can offer advice.

20 years ago we contacted barclays to ask about the their income protection plan. Their advisor suggested that on top of income protection, we should take out life insurance. The first thing we said was that we didn't want to pay for anything that meant the children were just left with losing 40% in inheritance tax. There was no point as far as we were concerned if that was to be the outcome.

We also told him that we also needed to be able to leave money for our eldest daughter who is leaning disabled without it impacting on her benefits. He told us that wouldn't happen as it would be written in trust and therefore not subject to inhertence tax, nor would it affect benefits.

I worked away from home for two weeks out of each month and my wife didn't work. So he said we both needed life insurance, my wife needed cover, so that there would be some money to cover the cost of childcare while I worked away in the event of her death.

He advised us that it would be better to take out two separate policies rather than a joint life insurance. After doing illustrations advised is to take out a maximum policy on a whole of life policy For around £180,000 for myself and of around £70,000 for my wife.

We can't say he didn't mention policy reviews and possible increases in premiums, because he did and indeed it's in the policy paperwork. When he was advising us and discussing the review part he told us that this review policy was a good condition to have, as we could increase our cover at this time if we felt we wanted to have more cover for things like increase in mortgages, having more children etc. without having to have another medical or get refused due to age etc.

However he did not at anytime explain how the maximum investment part actually worked, or explain how it funded the life insurance gauranteed sums. It's only after reading about how bad these policies are that I have begun to realise how they work, ( or indeed would never work)

The only thing discussed about maximum cover was that it was definitely the one that was needed to cover our financial situation and cover a percentage of my salary, which was around £30,000 at the time.

He said we needed this maximum policy in order to be able in the event of my death, to leave enough money to cover about 50% of my salary, less tax, if it was invested at 10%.,

I'm not sure looking back if we would have even got those sort of rates, but the advisor was suggesting with that sort of sum it was possible to get higher rates than normal saving rates.

He sent us the trust forms with examples of how to fill them in and told us to get them witnessed. He had the trusts as paying out to our respective spouses and in the event of them dying before the policy holder's own deaths, the sum insured was to be split equally between our three children. We were given the impression by the advisor that in any event, no matter who died first or otherwise, that the trusts would insulate the children from inheritance tax.

Over the years the premiums, mine in particular, have increased dramatically at the reviews. Although we had realised they'd be reviews, obviously not to the levels they were.

A couple of years ago we began to read about problems in these policies and also began to question how the trust was set up, as far as beneficiaries and inheritence tax was concerned. Barclays are now asking for just short of £600 a month for my policy alone. which is Around a 560% increase in premiums since 1995 and double the percentage increae of my wife's policy, which has increased at around 275%.

We have now come to the conclusion that we should get rid of this policy, but do wonder if there was any mis selling.

For a start, our financial circumstances were as follows. Our home four bedroomed detached home was worth around £75-78,000, of which we had a mortgage protection life insurance for £ 73,000. Our outstanding mortgage was only around £22,000, having paid of more than £50,000 in capital payments since we bought in in 1990, plus the original deposit.

We made it very clear to the Barclays advisor, that our plan was to clear the remaining mortgage, which we did within five years. I had started a pension with my employer, I had insurance from my company giving me four times death in service, we had around £20,000 in savings in the bank, we owned two cars valued by the advisor at the time for £25,000 and I was a beneficiary in my mothers estate, which would give myself or my children if I died first, around £15,000 on her death.

So taking all that into account, at the point of taking out the insurance I already had £150,000 in life insurance, more than £50,000 in equity in the house, £20,000 cash, £25,000 in assets and an inheritance to come of £15,000. So were already into the realms of inhertitence tax liability. We have been told since by a solicitor when we were discussing our affairs, that actually we have too much insurance and we should not have been advised to take out this policy given how much cover we had at the time.

Furthermore, which is the worst thing of all and our main motivation for considering stopping it, is in fact the trust would only protect my children from inheritance tax, only if I outlive my wife, if she outlives me, then the money is paid out of the trust to her and anything she then leaves to the children, becomes subject to inheritance tax. Which is specifically what we told the advisor we did not want to happen!

Also what we've learnt since and is the complete opposite to what the advisor said, is that even if my wife dies first and my other children avoid inheritence tax, once the money is paid out, it comes out of trust, therefore my disabled daughter would still have capital in excess of what she would be allowed under benefit rules and would have to pay for all her living costs and her day services out of it, until it was depleted to a point where they would start giving her money to live on again.

Obviously this capital/benefits rule would apply as far as my disabled daughter is concerned, to my wife's policy too!

So again apologies for the long post. But if anyone thinks we have a claim for Mis selling based on the fact we were already adequately covered, and didn't need this product, or that the way the policy was to be funded and the risks were not explained properly and that advice about the trusts and inhertience tax for our children was wrong.

I don't want to waste my time pursuing this if there's no way we were mis sold and we were just dumb enough to get talked into it.

Thanks.
Dave.

rs65

daviddee wrote: »

So again apologies for the long post. But if anyone thinks we have a claim for Mis selling based on the fact we were already adequately covered, and didn't need this product, or that the way the policy was to be funded and the risks were not explained properly and that advice about the trusts and inhertience tax for our children was wrong.

I'll admit I haven't read your whole post in detail but - were you adequately covered?
If you had died 19 years ago, you would have left your wife with your death in service amount and cash savings. Ignore the equity in the house as it was tied up in the house. You could've sold one car but cars are fast depreciating assets so not exactly relevant. £20k in cash would've been used up quick (remember funeral costs) and you still owed money on your mortgage.

£180k sum assured doesn't sound too bad. I don't think you mentioned the age of kids but I would expect at least a 5 yearly review to check adequacy of your plans.

daviddee

Hi, thanks for your reply. The £180,000 barclays Whole of life insurance policy was ontop of the £150,000 insurance we already had in place, prior to taking out this policy.

dunstonh

The amount is not an issue as you appear to have had a need for that.

safestored4

Having read the whole of your post nobody pressurisued you to take out the policy. You contacted Barclays to enquire about their income protection policy and freely chose to buy it. It would appear that now you haven't had to claim on it you would like your monry back. Opportunistic chancer is the phrase that most appropriately appears to fit.

Nearlyold

I would have thought the trusts used were flexible trusts which allow the trustees to distribute funds to whoever they wish and whenever and however they choose to do it e.g. all at once, in stages or distribute only the income. You and your wife would be trustees on each of the policies respectively plus other trusted persons of your choice who would make the decisions.

daviddee

Thank you for your polite reply I appreciate the civilility when you replied to my inquiry.

daviddee

Thank you for that information, that's might be a positive factor to consider if we decide on continuing with them.

daviddee

The income protection is a completely different policy from the two life insurance products that was suggested we needed on top of that protection. The income protection product was only to protect from a loss of earnings through illness, not a loss of life. The clue is in the title! So yes we did approach them about that, but we did not approach them about life insurance. Nevertheless, even to our inexperienced financial expertise, had a product been Mis-sold, that would have been completely besides the point.

To suggest that because someone makes the first approach to a financial insitution that is somehow an excuse for bad advice, would be the sort of response I'd expect from a sharp, opportunistic financial chancer.

Do have a nice day.

geoffken

Another poster who does not like the answers from professionals.

daviddee

I have no problem with the answers, it's what I came here for. What I have a problem with is bad, manners, rudeness and unnecessary abuse.

Clearly some people do not!