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online technical resource

whole-of-life policies

Whole-of-life polices are designed to provide a sum of money (the "sum assured") to a consumer’s family or estate when the consumer dies. The consumer pays either a lump sum at the outset or a premium every month.

As the name suggests, whole-of-life policies are intended to remain in place for the rest of the consumer’s life. However, some policies do not require the consumer to keep paying premiums once they have reached a certain age.

Whole-of-life policies sometimes provide other benefits to the consumer - for example, cover for specified illnesses or disabilities.

The main types of policy we come across are:

  • non-reviewable

    The consumer chooses the sum assured. The financial business then tells the consumer how much they need to pay to provide that sum. This is either a one-off lump sum payment or regular premiums for the rest of the consumer’s life. Regardless of what happens in the future, the business will not request any further payment or any increase in regular premiums. These policies may or may not contain an investment element.
  • limited payment term

    The consumer chooses a sum assured when they take out the policy. They then pay a regular premium to the business. However, the premiums are only paid for a set term - usually to a set age, such as 65. After this point, the consumer pays no more premiums, but the policy stays in place until their death. The sum assured is fixed when the last premium is paid and cannot usually be altered later.
  • reviewable

    This is the most common type of policy. The consumer chooses a sum assured when they take out the policy and pays either a lump sum, or more often, regular monthly premiums to the business. Part of the premium is used to build up an investment fund.

    The amount that the consumer is required to pay - and the sum assured - is set on the basis of certain assumptions about what will happen in the future. These assumptions include the cost of providing life cover and how well the investment fund will perform in the future.

    These policies no rmally have "review dates" when - if things have not gone as well as expected - the business may ask for the contributions to be increased, or may suggest that the sum assured is reduced.

    They also usually accrue a value as time goes by. This means the consumer can cash in the policy. Because of this, businesses sometimes recommend whole-of-life policies for savings purposes - or where the consumer wanted savings and life assurance together.

    Many types of reviewable policy offer a choice about how much of the premium pays for life assurance and how much is paid into the fund. They are often marketed as “minimum”, “standard” and “maximum” options. The differences will usually be reflected in the sum assured. For example, taking the “maximum” option will usually mean that a high level of life cover is provided, with only a relatively small amount left to be invested in the fund.

This section of the website focuses on reviewable policies - because most of the complaints we see involve that type of policy.

our approach to complaints

When we look at complaints about whole-of-life policies, we consider whether:

  • the consumer was given advice - and whether the policy was suitable for their needs; and
  • the business explained how the policy works to the consumer - including the fact that reviews would take place, and what the consequences might be.

We will not uphold a complaint just because the consumer was asked for more money - or was told they will have to accept a reduced sum assured.

Our approach when we consider complaints about whole-of-life policies is set out in the following sections:

The most appropriate way to compensate a consumer can be a difficult and complex issue - and will depend on the particular circumstances of each case. The case studies below include examples of the type of compensation we may award.

did the policy meet the consumer's needs?

Just because the whole-of-life policy was the most suitable product for the consumer from the business's product range, it does not necessarily mean the business was right to provide it. Businesses can explain to a consumer that they have nothing suitable to offer.

the consumer only needed life assurance for a limited time

Consumers sometimes complain that they only needed life assurance for a limited time - but that the policy they were sold committed them to paying for life assurance until they die.

Term assurance policies only provide life assurance for a set number of years, which the consumer chooses at the start. We will consider the facts of each case to decide whether a term assurance policy would have been available and if so, whether it would have been more suitable for the consumer. We are likely to uphold a complaint if we find that, when the policy was sold, the business had known that the consumer only needed cover for a certain period. For example, this might be until

  • the consumer's children were of a certain age (for example, 18 or 21);
  • another source of guaranteed income (for example, a pension) became available to provide for the surviving partner; or
  • a mortgage or other fixed-term debt was paid off.

case study 1

Mr and Mrs B were in their 40s and had two children. They said they needed life assurance in case one of them died - so that there would be money to help support the surviving partner and the children. The business advised them to take out a whole-of-life policy.

Mr and Mrs B later complained because they felt they had been sold something that did not match their needs.

The documentation completed at the time of the sale supported what Mr and Mrs B told us - in other words, that they needed the life assurance only to be in place until their children were 21. We also found that Mr and Mrs B's pensions would provide for the surviving partner should one of them die after retiring.

It seemed to us that Mr and Mrs B's needs could have been satisfied more cheaply and more appropriately - with simple term assurance (which the business could have provided) ending at their anticipated retirement dates.

We upheld the complaint. We told the business to compensate Mr and Mrs B for the amount they had been paying over and above what they would otherwise have paid for term assurance for the same sum assured.

We also told the business to provide the term assurance to Mr and Mrs B without their having to provide evidence of their health - and with the same premium that they would have paid if they had taken it out on the same date as the whole-of-life policy.

the consumer did not need life assurance at all

Where a consumer says that they did not need life assurance at all, we will consider their personal and financial circumstances at the time they took the policy out. We would be likely to uphold a complaint where the consumer was young, single and living at home with no dependants. This is because the main reason for having life assurance is to protect someone other than the consumer from being financially disadvantaged by their death. If no one is going to be financially disadvantaged, we will look at whether there was another reason for having life assurance.

If the consumer had dependants, or debts that they wanted to protect, we would take into account how much cover they had before taking out the policy (for example, any cover provided by an occupational pension).

the consumer took out the policy as a way of saving

We also see cases where consumers say they took out a whole-of-life policy as a way of saving - for example, to put money aside to buy a house in the future. If we are satisfied that the consumer's priority was to save or invest, we will look at how much the life assurance element of the plan cost. Where those costs were significant - and might affect the ability of the plan to provide the savings needed - we are likely to uphold the complaint.

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 fund was too "risky"

We see cases where the consumer complains that the underlying fund that the policy was investing in was too risky.

Investment funds present a range of risk - and each individual fund is different. We will consider the features of the fund, together with the consumer's own circumstances, before reaching a view on whether the fund was suitable.

There is more information about how we approach this issue in the section of our website on assessing the suitability of investments.

policy reviews

Consumers sometimes complain that they were not told a review could happen - or that the potential consequences were not explained to them. In these cases, we will take into account all the available evidence, including:

  • anything that the business or the consumer recall from any meetings when the policy was sold;
  • the product literature; and
  • any letters sent to the consumer explaining the reasons for the business's recommendation.

If we are satisfied that, on the balance of probabilities, the review process was explained to the consumer clearly, we are unlikely to uphold the complaint.

case study 2

Mr C started a whole-of-life policy to provide life assurance for his wife and children. He was happy that he would, potentially, have to pay for it until his death.

After 10 years the business carried out a review of the plan. It told Mr C that he would either have to double his contributions to maintain the same level of cover - or significantly reduce the life cover provided by the plan if he wanted to keep paying the same premiums.

Mr C complained that he had not been told when the policy was sold that it would be reviewed - and that he might be asked for more money. The business said that “the potential for reviews was disclosed in the policy conditions”.

We examined the paperwork that had been given to Mr C. We found that he had been given several different documents, some of which did not apply to his policy. Some of the paperwork gave the impression that the premiums would be "level" in the future - rather than the impression that the premiums might be altered.

The potential for reviews was mentioned in the policy conditions. But it was not given any prominence, or explained clearly and in a way that Mr C could have understood easily. There was no mention of the reviews in the rest of their correspondence.

We upheld the complaint because we had not seen enough evidence that the business had made Mr C aware of the reviews and their implications.

the review was not carried out at the right time

A plan will usually be reviewed at set times. This could be, for example, ten years after the plan begins, and then every five years after that. Or five years after the plan begins and then annually. The timing of the reviews will usually be set out in the conditions and documents - often in the “key features” document.

We sometimes see complaints where the business did not carry out a review when it said it would - and the consumer says they would have surrendered the policy, or taken out additional life assurance, had they been made aware of the problems earlier.

In these cases, we ask the business what the results of the review would have been, if it had been carried out at the right time - and what it would have advised the consumer.

If we find that the review would have revealed that no action was necessary - or that the policy was performing as expected - we will examine the policy conditions. Where these say that the consumer will not be contacted in these circumstances, we are unlikely to uphold the complaint.

But if the business would have said that the consumer needed to contribute more - or reduce the sum assured - we will consider what the consumer would have been likely to do, on the balance of probabilities.

If we are satisfied that the consumer would have surrendered the policy, we usually tell the business to pay compensation on the basis of:

  • the surrender value at the date the review should have taken place; plus
  • the total amount of premiums paid from the date that the review should have taken place - plus interest on those premiums at 8% simple per annum; less
  • the current surrender value.

If the current surrender value is higher than the historic surrender value (plus premiums plus interest), then we would not tell the business to pay compensation - because the consumer would be no worse off by simply surrendering the policy now.

Where we are satisfied that the consumer would have taken out alternative cover - continuing with the whole-of-life policy because they still needed the life cover that it was providing, but continuing on a different basis - we may make a deduction for the cost of the life assurance provided by the policy. This would usually be from the date that the review should have taken place.

If we conclude that the consumer would not have continued with the whole-of-life policy and instead would have taken out another replacement policy elsewhere - which is now more expensive than when the review should have been carried out - we may tell the business to pay additional compensation to recognise that extra cost.

Alternatively, we may decide that the consumer would have simply continued to pay into the plan. We will usually then tell the business to “reconstruct” the plan as it would be had everything been done correctly - that is, as if the review had been done correctly and the consumer had been asked to pay extra premiums to keep the policy “on track”. In a situation like this, we would not usually require the consumer to repay any premiums, but we may consider it fair and reasonable that they should meet the increased costs in the future.

the review was unfavourable

We sometimes see complaints where the business carried out a review and asked for significantly more money to maintain the sum assured - or it said that if the consumer wanted to pay the same premium, the sum assured will have to be reduced.

If we are satisfied that the reviewable nature of the policy was explained clearly to the consumer when they took the policy out, we will usually decide that increases in premiums (or reductions in life cover provided) - even if they were large - were a “normal consequence” of a reviewable plan - and that the possibility of an unfavourable review was always a risk of the policy.

compensation

where the consumer did not need life assurance at all

If we decide that the consumer did not need life assurance at all, we are likely to say that the business should refund all the payments made to the policy. We will also usually tell the business to pay an appropriate rate of interest because the consumer did not have the money, or was deprived of an investment opportunity, by paying the premiums (or lump sum).

There is more information about the rate of interest we apply in the section of our website on compensation for being "deprived" of money and for investment loss.

where the consumer would have taken out some other form of life assurance instead

If we decide that the consumer would have taken out some other form of life assurance instead, we are likely to tell the business to pay similar compensation - but deducting the cost of the life assurance provided by the mis-sold policy or the cost of a more appropriate policy.
If the mis-sold policy provided other benefits that the consumer would still have needed (for example, critical illness cover), we may also deduct the cost of these benefits.

where the consumer would have taken out a different policy instead

If the business had a non-reviewable policy in its product range, we might conclude that if the consumer had been aware of the implications of policy reviews, it is likely they would have taken this other policy out instead. In these circumstances, we might say that the business should reconstruct a non-reviewable policy using whatever assumptions and costs applied at the time of the sale. Where the business does not provide a non-reviewable policy, and the consumer cannot get life cover elsewhere, it may be possible to construct one with the business paying any extra cost.

Another option would be to tell the business to re-write the policy on a “minimum” or “standard” sum assured basis (if it provided this choice). This would increase the likelihood of the sum assured being maintained in the long term, because a larger part of the premium would be directed towards the investment element of the policy.

If we take this approach, we are unlikely to say that the consumer should now be asked to pay the extra costs that would have accrued if the new premium had been in place from the start. But they would have to pay the correct premium moving forward.

Because reconstruction might generate a higher surrender value, we would need to be satisfied that the consumer had a continuing need for life assurance before telling a business to reconstruct a policy.

Because these policies tend to be more expensive, we would not take this approach if the consumer:

  • did not want to pay higher premiums now;
  • could not afford the higher premiums now; or
  • could not have afforded the premiums when the policy was originally sold.

Alternatively, we may ask the business what sum assured could have been provided on a "non-reviewable", “minimum” or “standard” basis, for the premium the consumer is now paying. We would then say that the sum assured should be fixed at that level - and the consumer would continue to pay the same premium.

where the consumer would have substituted another type of life assurance

If we are satisfied that another type of life assurance (for example, term assurance) would have been more suitable, then we might say the business should:

  • replace the mis-sold policy with the more appropriate one, and refund any excess premiums together with interest. If the whole-of-life plan was cheaper, we will usually simply tell the business to reconstruct the plan to the more appropriate one. The consumer would then be required to pay the correct premium moving forward; or
  • pay the consumer compensation that takes account of the average market premium for term assurance at the time the mis-sold policy was taken out (if the business did not sell a term policy at the time).

other information we have published

help for businesses and consumer advisers

contact our technical advice desk on 020 7964 1400

This is part of our online technical resource which sets out our general approach to complaints about a wide range of financial products and issues. We would like your feedback on how helpful you found it. Please also use the feedback form below to tell us about anything you think we could clarify or explain better.

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  • The law requires us to decide each case on the basis of our existing powers and what is fair in the circumstances of that particular case.
    We take into account the law, regulators' rules and guidance, relevant codes and good industry practice at the relevant time.
    We do not have power to make rules for financial businesses.
    Our current approach may develop in the light of circumstances disclosed by further cases we receive.
    We may decide that fairness requires a different approach in a particular case.