A problem with life insurance

thegreenone

My husband and I took out a whole of life policy in 1997 for £200k cover. We had a big'ish mortgage and wanted peace of mind. In 2008 it was reviewed and we were told we wouldn't get the 200k so we needed to up the payments. We did. Then again in 2013.


Now, I know we should have read the letters more carefully each year but we had a policy document showing we had 200k cover so thought all okay. I'm seriously kicking myself.


This morning I phoned the co. to ask if it was possible to atop paying two of the policies because we don't need that amount of cover anymore and it was too expensive. When going through details, I could tell there was something amiss. Apparently, when we took out the original policy we were only covered for £59k not the 200k we asked for and stated on the policy document. Subsequent reviews later and according to our policy documents we are now insured for over £300k but according to the ins co we are only at 190k.


So we have never been covered for 200k. I dread to think what might have happened when the original policy wouldn't have paid off the mortgage let alone put money in the bank (as planned) should the worst have happened. However they seemed to know we wanted 200k of cover. Confused. Perhaps we were put on an increasing policy but it certainly wasn't explained.


I'm so cross with myself for not noticing and angry with them that we have been paying out believing we were over covered when in fact it was not even near.


I'm going to write and ask for clarification but has anyone had this experience before please?

TrickyDicky101

I am a bit confused - you say you took a whole of life policy to repay a mortgage? That's very unusual, no?

Normally, endowments would have been the life insurance product of choice (in times gone by) to provide the repayment vehicle for a mortgage.

You know that Whole of Life means at least one of you must die (assuming you are the life assured) before the policy will pay out (edit: unless you can surrender it earlier in which case it will pay out whatever the investment value has accumulated to)?

In your original policy documents what was the basic sum assured? Unfortunately, lower investment returns in the years subsequent to you taking out your policy have necessitated the increases in premium to guarantee cover. Premium reviews are common in Whole of Life, but like I say I would have thought a WoL is unusual for mortgage settlement (this may simply be my limited experience in this area though).

thegreenone

Sorry didn't make myself clear. We wanted a sum that, in the event of the death of one of us, would provide enough cash to clear the mortgage and any cc debts we had and put a substantial amount of money into savings, so the surviving partner would not have to worry about money.


We thought about the scenarios and sum very carefully. A bit morbid but sensible, we thought.


As our children were young then, we also wanted a large enough sum so that, in the event of both of us dying together (ie car crash) there would be enough money for the boys care with their godparents.


In the original policy, the Guaranteed Sum Assured states 200k.

TrickyDicky101

Do you have another payment vehicle in place for your mortgage or did you change that to a repayment mortgage at some point in the past?

I can understand that WoL premiums for the same sum assured would be cheaper than a typical endowment but it seems rather odd to use a product which may run for decades as insurance against repayment of a debt (mortgage) that presumably had a definite maturity date.

Anyway, have you asked the life company why they claim you are not insured to the full £200k given you have a policy stating this as your guaranteed sum assured?

Have you increased your premiums at all review dates to ensure your cover remains?

thegreenone

The mortgage is repayment but had an endowment to start with. We cashed that in when we switched to repayment. The mortgage has never been attached to this policy it was put in place to provide financial security should one of us die.


My snowball calculator says we could pay off the mortgage by the beginning of 2017 that's why I started to look at the amount of life assurance we realistically need now.


Para 3. not yet, I intend to write with a copy of the policy. The people I spoke to had no knowledge of a typed policy stating this amount of cover.


Para 4. Yes, but we don't need 200k now.

TrickyDicky101

Unfortunately, the quality of people you get on helplines from life companies isn't always what we might hope for and mistakes can and are made with the policy information on the systems they have access to.

I think it would be a good idea to write as you suggest and hopefully you will get the confusion resolved. You may wish to make it clear you are making a complaint to them so that it sets the clock ticking (8 weeks) following which if no satisfactory response is made you can take the issue to the FOS. If nothing else it should concentrate minds wonderfully.

kingstreet

In the 80s and 90s certain distributors sold Flexible Unit-Linked Whole Life products for protection using a "maximum benefit" option. This was because the firms they worked for didn't offer term assurances, as these didn't generate enough charges/profit.

The sum assured was guaranteed for ten years, then a plan review would be carried out and the future cover and premiums would be set based on the then age of the planholders and performance of the units which had been purchased.

Cover was funded by encashing units purchased by the premiums paid.

Further reviews would take place periodically.

In the bulk of cases, the initial sums assured weren't sustainable so the policyholder was left with the choice of a lower protection amount, or an increased premium.

At no point would the insurer suggest a term assurance as an alternative. That would need an independent plan review by an outside IFA.

We have seen several threads like this in the last few years. Independent advice is probably the only way to unravel the mess.

thegreenone

Thank you very much. That's sounds exactly what we've got. Is it worth writing to them to complain of mis-selling? Not bothered about compensation (would be nice though) but just to state it wasn't what we thought it was.

dunstonh

Is it worth writing to them to complain of mis-selling?

On what basis would your complaint be?

By todays standards many of the sales of these would be classed as mis-sales. However, by the standards of the year they were sold, they would not have been.

Also, if the firm you bought from was a tied agent and this is all they had, then that is all they can offer. There were a number of companies that had no alternative to this type of policy and they could only sell what they could offer.

kingstreet

I agree with dunston.

If this was all they could offer, the recommended product would be said to have best suited the needs of the applicant at that time.

Your complaint would also be with the seller/distributor from that time, not the insurer, unless you bought from the insurer's tied agent or company representative.