Whole of Life Insurance Policy

Mattt

My parents took out a joint whole of life insurance policy in 1991. This policy would pay into a trust and was set up to protect myself and my siblings from inheritance tax liabilities in the event of their deaths.

Initially the payments were £20 per month for £250k of cover.

The policy is "reviewable" and "maximum" in terms of the amount of life cover. Hence, my parents are now approaching 70 and the sum assured is £820k but the premiums are £450 per month!

The policy is indexed linked but also has annual review periods. The company (Guardian) have sent through a projection for the premiums if it remains as is and by 2026 they predict the premium will reach over £3k a month. However, the assured sum is currently increasing by more than £50k per annum, so even at £3k a month it is still viable providing we can afford the premiums.

I have read through advice on the Financial Ombudsmen site (but I can't post a link due to this being my first post). If you Google "maximum benefit whole of life insurance" it's the first organic listing.

I wonder whether they might have a case for mis-selling, specifically pertaining to this paragraph on that website:
"the consumer took out the policy to cover a potential inheritance tax liability"
We sometimes see cases where a consumer took out a whole-of-life policy to cover a potential inheritance tax liability when they die. A whole-of-life policy can be sold for this purpose. But in cases involving reviewable policies - and particularly “maximum” policies - we would expect the business to have made sure it was suitable for the consumer’s circumstances, and to have made it clear to the consumer that they may have to pay more in the future to maintain cover for that fixed liability.
Where this has happened, we will look at whether the policy could continue to provide the cover in the long term. If that was unlikely, we would usually uphold the complaint.

Any advice greatly appreciated.

dunstonh

"the consumer took out the policy to cover a potential inheritance tax liability"
We sometimes see cases where a consumer took out a whole-of-life policy to cover a potential inheritance tax liability when they die. A whole-of-life policy can be sold for this purpose. But in cases involving reviewable policies - and particularly “maximum” policies - we would expect the business to have made sure it was suitable for the consumer’s circumstances, and to have made it clear to the consumer that they may have to pay more in the future to maintain cover for that fixed liability.
Where this has happened, we will look at whether the policy could continue to provide the cover in the long term. If that was unlikely, we would usually uphold the complaint.

The FOS are just saying what they would expect to see. i.e. were the risk warnings present on the documentation. If yes, then on that point, they would reject and if no, they would usually uphold. We have no access to the documentation to see if the warnings are present.

However, do also remember that a successful complaint would lead to the policy being voided. That could be an outcome that is not desirable if you think the policy is still viable.

Have your parents looked to adjust the sum assured? The premium increases are largely down to indexation. Do they still need indexation? Reviewable plans typically allow adjustments to the sum assured at review points.

Mattt

Many thanks for the feedback.

- The original policy illustration makes no mention of reviews. It has a statement that reads "... Contributions will also increase at a compound rate of 5% per annum except where the plan is on Maximum protection, when they may increase at a higher rate than Protection benefit(s)."
- I called the insurance company and they have sent to me a copy of the original acceptance letter - this also contained the statement above.
- Similarly there is a "Product Particulars" document that makes no mention of reviews.

I think there are two questions:
1. Is that statement above enough to fully explain and illustrate the situation they now find themselves in
2. Was a WoL Maximum policy the right thing in the first place, given that they wanted to protect against a future inheritance tax liability. I'm not an IFA but I would have thought a term life assurance product and some form of investment would have been better??

Thanks again.

dunstonh

1. Is that statement above enough to fully explain and illustrate the situation they now find themselves in

I wouldn't want to second guess but when you look at the FOS paragraph, it says they look that it is "clear to the consumer that they may have to pay more in the future to maintain cover for that fixed liability."

You mention the paperwork says "Contributions will also increase at a compound rate of 5% per annum except where the plan is on Maximum protection, when they may increase at a higher rate than Protection benefit(s).""

So, in isolation of all other facts, it does look like they have covered that.

2. Was a WoL Maximum policy the right thing in the first place, given that they wanted to protect against a future inheritance tax liability. I'm not an IFA but I would have thought a term life assurance product and some form of investment would have been better??

A decreasing term assurance would be used to cover a PET. However, if no gifting is involved then a whole of life assurance policy is the normal policy that is used for that purpose.

An investment would require you parents giving up access to that investment. Something many people are not willing to do as they worry about the future and "just in case".

The WOL policy from 1991 is obsolete by todays standards. But it wasnt at the point of sale.