Life Insurance Penalty?

jonathan.jag · 21 September 2019 at 6:20PM

Last month I cancelled my life insurance with Aviva after moving house in order to take out a new policy elsewhere, I had the old policy for 4 years. I had it confirmed by Aviva there were no charges from their side for cancelling. Last week the financial advisor who recommended the product 4 years ago left me a voicemail that I have incurred a “heavy penalty” for cancelling with no other context. I have emailed the advisor multiple times to request they explain in writing the reason for the penalty so I can look into it and possibly take advice but each time they refuse to explain instead asking I ring them or they ring me as it is “too complicated to put in an email”. I am wary of dealing by phone without having it backed up in writing especially considering we have no documentation either from Aviva or the advisor outlining an early cancellation penalty.

I was wondering if anyone had experienced anything similar/would know the reason for the penalty and is it unreasonable from my end that I would prefer to deal only by email? At the moment we are at a bit of a stalemate.

Many thanks.

Novice_investor101 · 21 September 2019 at 6:59PM

Did you pay the advisor a fee for setting up your plan?
Most likely case is that you didn't & his payment for the work he did for you came from Aviva by way of commission instead of you paying him direct - you will have agreed to this in the paperwork you signed when the advisor did the work for you. I believe it is called fee offsetting, or something similar.

If you cancel the policy within the first few years, the insurance company will "claw back" the upfront commission paid to the advisor, so effectively he hasn't been paid. The documents you signed when taking the advisors service would have outlined that if the commission is clawed back, you would then be responsible for paying the fee for the work they did.
That is usually the reason you get a bill from the advisor after cancelling a life policy.

jonathan.jag · 21 September 2019 at 7:17PM

Thanks for your reply. I did not pay a fee, his payment was commission based. I had assumed it was to do with a clawback by the insurer but I’m almost certain I never saw or signed any agreement outlining the advisors commission as I would not have wanted to effectively tie myself into a policy for seemingly 4+ years. I could be mistaken though so I have asked for a copy of this paperwork sending on 3 occasions but as I mentioned they are refusing to deal with me via email. I would hold my hands up if I’m in the wrong but without the proof I find it hard to accept I owe them money.

jonesMUFCforever · 21 September 2019 at 11:18PM

Can't he type a letter and send it by Royal Mail?

I can see both sides of the argument here and I'm pretty sure that you walked out of the advisor's office with terms of his/her service and copies of documents.
What have you done with these?

ffacoffipawb · 22 September 2019 at 12:20AM

jonesMUFCforever wrote: »

Can't he type a letter and send it by Royal Mail?

I can see both sides of the argument here and I'm pretty sure that you walked out of the advisor's office with terms of his/her service and copies of documents.
What have you done with these?

Seems unlikely commission can be clawed back after 4 years. Maybe within 2 years at most?

csgohan4 · 22 September 2019 at 2:46AM

ffacoffipawb wrote: »

Seems unlikely commission can be clawed back after 4 years. Maybe within 2 years at most?

Depends on the T+Cs the OP agreed to, life search had 2 years on their agreements last I checked for example, it depends on the broker

kingstreet · 22 September 2019 at 9:04AM

ffacoffipawb wrote: »

Seems unlikely commission can be clawed back after 4 years. Maybe within 2 years at most?

It can.

Most insurers have moved to four year clawback.

The minority now offer two years.

TrickyDicky101 · 22 September 2019 at 5:47PM

jonathan.jag wrote: »

Thanks for your reply. I did not pay a fee, his payment was commission based. I had assumed it was to do with a clawback by the insurer but I’m almost certain I never saw or signed any agreement outlining the advisors commission as I would not have wanted to effectively tie myself into a policy for seemingly 4+ years. I could be mistaken though so I have asked for a copy of this paperwork sending on 3 occasions but as I mentioned they are refusing to deal with me via email. I would hold my hands up if I’m in the wrong but without the proof I find it hard to accept I owe them money.

I don't follow your reasoning here - this is life insurance so is a long term policy (eg if backing a mortgage then typically 25yr+). You shouldn't chop and change with life insurance because it gets increasingly expensive to take a new policy as you get older.

Weighty1 · 22 September 2019 at 9:53PM

TrickyDicky101 wrote: »

I don't follow your reasoning here - this is life insurance so is a long term policy (eg if backing a mortgage then typically 25yr+). You shouldn't chop and change with life insurance because it gets increasingly expensive to take a new policy as you get older.

But peoples circumstances can and do change.

OP, the clawback period for most brokers, as mentioned by Kingstreet, is normally 4-years so I'd be EXTREMELY surprised if you'd incurred a heavy financial penalty if the plan had been in force for 4-years. I think the reason he wants you to call is so that he can see why you cancelled and potentially discuss taking new cover through them.

Why not give him a call and see what he has to say? He can't really hold you to anything based on a phone call anyway.

jonesMUFCforever · 22 September 2019 at 10:15PM

ffacoffipawb wrote: »

Seems unlikely commission can be clawed back after 4 years. Maybe within 2 years at most?

10 years ago I purchased life cover from Aviva using one of the comparison sites - their paperwork indicates a penalty could be levied up to 6 years. It all depends on what the OP signed up for.

SonOf · 23 September 2019 at 9:56AM

There was a change in the consumer regulations 2015 act that effectively made attempts to claw back commission from the consumer an unfair contract term unless it was a fee with commission offset.

Switched on adviser firms would know this from their internal compliance or the third party compliance firms they use. However, not all firms have switched on compliance departments/firms or they may even be trying it on.

This was to do with the clawback being a contract term between the provider and the adviser firm and not the consumer. i.e. the consumer cannot be held responsible for the contract terms they were not party to.

However, as mentioned, the clawback period is 4 years (which is the most common period) and if the policy is 4 years old (or more) then the clawback amount will either be minimal or non-existent.

Life Insurance Penalty?

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