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FOS raises concerns over whole of life policies- Update with additional stats

The Financial Ombudsman Service has raised concerns about the levels of complaints it is receiving about reviewable whole of life policies.

In a comment piece in the Daily Telegraph, Financial Ombudsman Service lead ombudsman for investments Caroline Mitchell says the FOS received about 1,400 complaints about whole of life policies last year. Out of these, 33 per cent were upheld.

The FOS received 1,690 complaints about whole of life policies during 2009/10, 28 per cent of which were upheld.

Mitchell says many consumers complained that it was not made clear to them when they took out the policy that their premiums would be reviewed and could increase significantly after a set period of time.

Mitchell adds: “We expect businesses that sell reviewable whole of life policies to explain clearly that these policies are subject to review – and to point out the effect that any review might have on a consumer’s future premiums.”

She also says that a small number of complaints revolved around whole of life policies taken out for inheritance tax planning that had not been put in trust for the beneficiaries of the estate. She says the FOS would expect the business selling the policy to create the trust or to check if the policyholder has made their own arrangements for this to be done.

The Telegraph reports the anger of readers who have recently seen their premiums increase significantly with some being forced to settle for far lower policy benefits.

The FOS says it is unable to provide a breakdown for which distribution channel accounts for the most complaints about whole of life policies. However, last year complaints about whole of life policies and savings and endowment products accounted for 21 per cent of total investment complaints.

Overall 44 per cent of investment complaints last year were made against life insurance and investment product providers. A further 21 per cent of investment complaints were made against banks, and 14 per cent were against IFAs.


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There are 23 comments at the moment, we would love to hear your opinion too.

  1. While this may be true, the product providers must accept some of the blame here. Some of the reviewable premium products have seen increases which many advisers could not have anticipated. And of course the KFDs did point out that premiums would increase so consumers should be aware of this. Skandia Protect is but one example of a poor product. Some of the increases are out of all proportion to the likelihood of increased mortality (underwriting) rates at renewal and smack of trying to make money out of existing clients. Like Halifax Gold accounts, a nice incentive and then milk the consumer on the basis of they are unlikely to move (client inertia).
    Not putting a policy in trust is unforgiveable.
    Finally WOL policies require reviewing annually – many consumers do not wish to do this and are now finding out the consequences of not doing so in spite of being recommended to do so. We do not put that in our letters without reason!

  2. Frankly all I can say is bollocks to this, every adviser I ever dealt with always stressed the importance of understanding the reviewable nature of this plan, those clients that wanted suriety didn’t take these plans out.

  3. Jonathan Rogers 3rd October 2011 at 9:25 am

    Of the 1,400 complaints it would have been more appropriate to mention how many of these complaints were upheld. We are in a culture of ” Lets Sue” ” No win No Fee” etc. The details are always in the KFI. If one takes out an Insurance Policy then one should read ALL of the small print. What happened to “Let the buyer beware”? Once again it appears that the Adviser is being blamed for doing his job in the best interests of his client, whilst the product provider, often a Bank subsiduary, gets off scot free.

  4. If a claimant says ‘I didn’t understand the risk’ the FOS will inaviably find in his/her favour.

  5. Terence P O'Halloran 3rd October 2011 at 9:31 am

    Eleanor Downie FCII and I raised this qustion 12 months ago. We carried out some basic research accross several companies and found a wide diversity of approach by insurers.

    Regulatory and statutory constraints work against guarunteed products (fixed sum assured/ fixed premium with accumulating surrender values) and yet provide little guidance for underwriters. The difference in treatment of published and what now appear to be increasingly popular ‘annual’ reviews.

    There is no doubt in our minds that certain life companies are milking the system and effectivly ‘dumping’ older lives in order to improve their balance sheets from increased premium income and reduced risk.

    The regulator knows and ignores the symptoms and the disease.

    It has to be stated, clearly, that some companies not only honour their contract terms but communicate effectively and in the life assured’s best interests.

    The whole of Life assurance market requires a sensible detailed appraisel before yet more damage is done to a very important sectore of the life assurance industry. Asset stripping comes in many forms.

  6. I would alos be interested to hear where the original advice was given. Either from IFA or as I suspect from the bank assurance world where the importance of getting the policy on “risk” first and then sort out the trust afterwards may be part of the problem.
    A maximum cover reviewable WOL policy is no more than a 10 year term policy with an option to renew and unless used in that context should not be included in IHT planning

  7. Might be good to know how many of the life companies are still open to new business or are closed companies maxing out returns from a closed life company

  8. Whilst I agree with the comments made above, it is perhaps worth mentioning that many WoL contracts these days are based on fixed-for-life premiums with no periodic review and, quite often, they’re hardly any more expensive than their reviewable counterparts, if at all.

    The worst case I’ve seen of an insurer hiking the premium at the review date is Prudential, who more than doubled it because the underlying funds had failed to achieve the required hurdle growth rate of 6% p.a. By how much they declined to disclose (my guess is not by much), though obviously they saw it as an easy opportunity to fleece or dump the clients and took full advantage accordingly. It’s practices like that which give us all a bad name and constitutes yet another example of why I try to avoid recommending Prudential, amongst others, whenever possible.

  9. These “flexible” Whole Life policies have been a problem since they started in the early 1980’s.

    It goes beyond the hugely increased premiums charged at review date, although that is bad enough.

    Just to make sure that the client has little alternative to pay the charges, many have exorbitant surrender penalties. One of the first, the Skandia Permanent Protection Plan still makes a surrender charge at age 106!!!!

    Often the client has only three choices, of which only the first, expensive, option enables the plan to perform its original function: 1. Pay the higher premium to keep the sum assured.
    2. Reduce the sum assured to maintain the premium (hardly satisfactory), or
    3. Make the plan “paid up” with the original or a reduced sum assured (again not satisfactory).

    Not surprisingly, the high and continuing surrender charge means that whichever the client chooses, the insurance company wins.

    Sam Caunt is correct when he says these products, like the Halifax Gold account, “milk the consumers”, except for one thing: the surrender charges mean the insurers have even covered-off the inertia option.

  10. I always give the client the option of either maximum cover or balanced cover when considering Flexible Whole of Life and explain that with balanced cover the premium will be intioally higher than maximum cover but may not be subjected to hikes in premiums at the review dates. When however they see the difference between the premiums for balanced versus maximum cover the client in 99% of cases will alaways select maximum cover as the monthly/annual premiums are typically 5 time lower than Balanced cover. It doesnt matter how much information you give a client to explain the benefits of balanced cover it always comes down to price!!!!

  11. I was incensed by the Telegraph article although I very rarely recommend whole life policies. I did point out that in most cases the IFA receives less commission than for a term policy indicating that the IFA thinks the whole life policy more in the client’s interest. Also the company is bound to continue to offer cover, which, as I understand it, is based on the company’s current rates taking into account the value of the residuary fund within the whle life policy.Such values are poor because of the investment performance over the last decade.

    Skandia was attacked but they issue regular statements so the client should be well aware of the position. I doubt that people in poor health at the time of a review will be complaining.

  12. @Anonynous

    You clearly do not understand that Balanced (aka Standard) level premiums CAN be hiked at the review date.

    Always look at guaranteed premiums over investment based ones or you can be taken for a ride later on.

  13. Reading the comments above I am struck by how knowledgeable and reasonable they are. One would have thought that the FOS would have spoken to experienced practitioners about this matter before engaging in more self-justificatory bureaucratic grandstanding, most of which is designed to increase their increasingly fragile credibility and legitimacy. The prime reason for which is to mask the redundancy of their jobs. This is the age of extremism alright – bureaucratic extremism. Us liberty and responsibility loving moderates have a a real battle on our hands. Firstly to hold the line against them and then to roll them back into the shadows they spring from. Loving your bureaucracy is a certain way to failure.

  14. Sounds to me like they`re touting for business.

  15. Basically they are invariably always going to end in tears… bad product… how the hell anyone can recommend them with a straight face … how do you confirm affordability to a 50 year old who will be still paying the premium in his eighties, will have had a dropped income in that period and will have had multiple reviews with unlimited changes to the premium…..

  16. Strange thoughts going on in our profession.
    Many years ago I met a widow who’s husband had shifted his mortal coil a few weeks after a TERM policy had ceased.
    That made me think, and I began to tell my clients “Its better to look back and know you dont need the cover than to look forward and assume you wont”
    In the main I like Whole Life or Convertible Term, but most of all I like clients that understand the low premiums are going to increase and by how much we do NOT know. If they want security, they buy it under Guaranteed premium policies but if they want high cover, then the choice is theirs, high cover low premiums = reviews.
    of course there are those that will disagree with my views, but I have many merry widows who are eternally grateful that I advised the maximum cover at a cost the family budget would stretch to.
    Yes I get the grumbles about the costs, and it is obvious that if they are grumbling, they didnt keep their part of the bargain and die.
    I do point out that in Sicily they have a solution for living too long!

  17. I bet you also have a LOT of clients who have surrendered the policies early too….

  18. Well said “Anonymous”, but actually I dont have that many.
    However, assuming you are an IFA and willing to come out of your anonimity, why dont we have an open discussion where you can see my track record and I can marvel at yours.

  19. These plans are mainly sold today for IHT planning purposes and hence can be for guaranteed premiums with no reviews as well as no surrenders values. Most IFA’s would point out that these plans are reviewed after their 10th Anniversary depending on whether they were on Max basis or on Std basis, the premiums will rise accordingly.

  20. These policies had / have a use. The question is whether they were suitable at the time of sale and whether the client understood what they were purchasing.

    Unfortunately, this doesn’t always reflect in a FOS decision….

  21. I’m currently contracted to investigate Protection complaints including Whole of Life by one of the big providers. It’s surprising how many people say at premium review time they were unaware there would be a premium hike/reduced sum assured, even though they would have experienced this previously (and typically previously agreed to a reduced sum assured). I may be generalising but these customers have often had no dealings with an adviser for many years, so it’s not surprising they forget about the benefits and structure of these plans.

  22. There are two sides to every story, the complaints I deal with show that some advisers did not bother to explain the severe premium hikes that are possible with UL WOL contracts written on ‘maximum cover’ terms with some irresponsible providers who were after market share through The Exchange etc. If advsiers were selling to premium then they only have themselves to blame.

    On the other hand the claimant is often suffering from SMS, selective memory syndrome.

    The same problems exist with WOL standalone CIC contracts.

  23. The best way to sort out selective memory syndrome is NOT a suitability report, it is to have a recording of what was said ((which we have had for several years now). The only complain we had (via a solicitor) was one which included SMS, and the complaint miraculsously dissapeared after I got the solicitor to specify in writing what he felt the client was complaining about (as the client had not complained to me, it was difficult to work out exactly what they were complaining about as yes the investment had dropped by £20k/5% of the sum invested). Once they wrote stating what they were saying I had not told the client, it was quite simple to listen to the recordings and then send them a copy highlighting the SMS problems of their client…. and perhaps an accusation of not telling someone something when it can be proven that this is not the case, might be quite near to FRAUD…..

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