What are whole-of-life policies
Whole-of-life assurance is life insurance which stays in place throughout your lifetime. If you have a whole-of-life policy, you’ll pay either a lump sum at the start of the policy, or a monthly or annual premium. The policy then pays out a sum of money to your family or your estate when you die.
Types of complaint we see
The sort of complaint we get from consumers about whole-of-life policies include:
- The policy they got isn't suitable for their circumstances and needs
- They only needed life assurance for a limited time
- The underlying fund the policy was investing in is too risky
- They weren't aware that the policy could be reviewed regularly - potentially leading to increased payments or reduced benefits
- Their policy wasn't reviewed when it was supposed to be
What we look at
Many of the complaints we see involve reviewable policies. The amount that you need to pay, and the sum assured, are based on assumptions about what will happen in the future. These assumptions include:
- the cost of providing life cover
- how well the investment fund will perform in the future
Whole-of-life policies can have review dates, known as reviewable policies. If things haven't gone as well as expected, you may be told that your contributions need to increase, or that the sum assured will be reduced.
Policies also usually gain some value as time goes by, and you can cash in the policy.
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. This is often marketed as 'minimum', 'standard', or 'maximum' options.
When we look at complaints about whole-of-life policies, we'll look at whether:
- you were given advice
- the policy was suitable for your needs
- the business explained to you how the policy works - including the fact that reviews would take place and what the consequences might be
If a whole-of-life policy isn't suitable
If the policy wasn’t suitable and didn’t meet your needs, we’ll investigate. We may feel that another type of life assurance such as term assurance would have been more suitable for you. If this happens, we might tell your insurance provider to:
- replace the mis-sold policy with a more appropriate one, and refund any excess premiums (with interest)
- pay you compensation that takes account of the average market premium for term assurance at the time the mis-sold policy was taken out
If term assurance would have been more suitable
It may be that you only needed life assurance for a limited time, but the policy you were sold committed you to paying for life assurance until you die. A term assurance policy provides life assurance for a set number of years – you choose this at the start.
We’ll look at the facts of each case to decide whether a term assurance policy would have been available and more suitable.
We’re likely to uphold your complaint if we agree that when you were sold the policy, your insurer knew that you only needed cover for a certain period. This might have been until:
- your children were of a certain age
- you had another source of guaranteed income like a pension, to provide for the surviving partner
- you’d paid off a mortgage or other fixed-term debt
Investment funds like whole-of-life policies, present a range of risks. Your complaint may be that the underlying fund the policy was investing in was too risky. In these cases, we’ll need to look at:
- the features of the fund into which you paid contributions
- your circumstances
Reviewable policies - policy reviews
In the case of a reviewable policy, your policy will usually have review dates, when the value of your plan will be compared with the benefits the insurer will provide.
If you didn't know the plan would be reviewed
We’ll consider whether it was made clear to you at the time of sale that the plan was subject to regular reviews. We’ll also consider if whether these reviews could lead to increased contributions or reduced benefits. We may uphold complaints if we think the effects of reviews weren’t made clear. We’ll look at:
- anything that you or your insurer remember from meetings when the policy was sold
- the product literature you were given
- any letters you received explaining the reasons for the business's recommendation
If we’re satisfied that the review process was explained to you clearly, we’re unlikely to uphold the complaint.
If the review wasn't carried out at the right time
A plan will usually be reviewed at set times – for example, 10 years after the plan begins and then every five years after that. The timing will usually be set out in the terms and conditions or key features document.
You may be unhappy if your provider didn’t carry out a review when they said they would. Some consumers tell us that they would have made different choices if they’d been made aware of the problems earlier. This might be surrendering the policy or taking out extra life assurance.
In these cases, we’ll ask your provider what the results of the review would have been, if they’d been carried out at the right time and what they would have advised you to do.
The review was unfavourable
We often 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 you wanted to pay the same premium, the sum assured would have to be reduced.
If we’re satisfied that the provider clearly explained to you that the policy would be reviewed when they took it out, we’ll usually decide that increases in premiums (or reductions in life cover provided) were a ‘normal consequence’ of a reviewable plan. In these circumstances, we’ll also usually decide that the possibility of an unfavourable review was always a risk of the policy.
The customer would have taken out a different policy instead
If we agree that it’s likely you would have taken out a non-reviewable policy, we might say that your provider should:
- construct or reconstruct a non-reviewable policy
- construct one with the business paying any extra cost
- rewrite the policy on a ‘minimum’ or ‘standard’ sum assured basis to increase the likelihood of the sum assured being maintained in the long term
If life assurance wasn't necessary
You may tell us that you didn’t need life assurance. In these cases, we’ll consider your personal and financial circumstances at the time they took the policy out.
We’d be likely to uphold a complaint if you’re young, single and living at home with no dependants. This is because the main reason for having whole-of-life cover is to protect someone other than you from being financially disadvantaged by your death. If no-one is going to be financially disadvantaged, we’ll look at whether there was another reason for having life assurance.
If you had no dependants, or debts that you wanted to protect, we’d take into account how much cover you had before taking out the policy, for example, cover provided by an occupational pension.
If we decide that you didn’t need life assurance at all, we’re likely to say that the business should refund all payments you made to the policy. We’ll also usually tell you to pay an appropriate rate of interest, because the customer didn’t have the money, or was deprived of an investment opportunity, by paying the premiums or lump sum.
Read more about compensation for investment complaints.
The policy as a way to save
We do see cases where people took out a whole-of-life policy as a way of saving money, for example, to buy a house in the future.
If we're satisfied that this was your priority, we'll look at how much the life assurance element of the plan cost. If these costs were significant, and might affect how well the plan could provide the savings, we're likely to uphold the complaint.
Potential inheritance tax liability
Sometimes consumers take out a whole-of-life policy to cover a potential inheritance tax liability when they die. But in cases involving reviewable policies, and maximum policies, we’d expect the business to have made sure:
- it was suited to your circumstances
- it was clear to you that you may have to pay more in the future to maintain cover for that fixed liability
We’ll look at whether the policy could continue to provide the cover in the long term. And if that was unlikely, we’d usually uphold the complaint. We’d usually expect whole-of-life policies sold for inheritance tax mitigation to be set up on a ‘standard’ basis and written in trust.
Handling a complaint like this
We only look at complaints that the business has had a chance to look at first. If you complain and the business doesn't respond within the time limits or you disagree with the response, then you can come to us.
Find out more about how to resolve a complaint.
Putting things right
Usually, complaints about whole-of-life policies made against independent financial advisors will only involve issues of suitability. But complaints against insurers may involve suitability, administration or both.
In terms of putting things right for the you, insurers will usually be able to make changes to the policy but independent financial advisors won’t. So we’ll have to think carefully about how best to compensate a customer where an independent financial advisor is responsible.
We’ll consider whether compensation is due for any unnecessary delays or poor customer service during an already difficult time.
The most appropriate compensation will depend on the particular circumstances of each case.
A customer complains when his insurer reviews his policy and asks him to double his premiums
Investments Whole of life assurance