Term Insurance Decision Reference 2022-0253

• Case Outcome: Upheld
• Reference: 2022-0253
• Date: 29 July 2022
• Year: 2022
• Subject Matter: Term Insurance
• Finantial Sector: Insurance
• Conducts Complained Of: Fees & charges applied ,Premium rate increases , Results of policy review/failure to notify of policy reviews

Decision Ref:

2022-0253

Sector:

Insurance

Product / Service:

Term Insurance

Conduct(s) complained of:

Fees & charges applied

Results of policy review/failure to notify of policy

reviews

Premium rate increases

Outcome:

Upheld

LEGALLY BINDING DECISION OF THE FINANCIAL SERVICES AND PENSIONS OMBUDSMAN

The complaint concerns a whole life policy, where the Complainant asserts the Provider

amended the way in which the indexation is calculated.

The Complainant’s Case

The Complainant asserts that when his whole life policy was set up with the Provider in 1996,

he was led to believe that the “increase in the premium was at the same rate as the increase

in the sum assured, for the automatic increase facility.”

The complaint further asserts that the terms and conditions of the policy state that the

“automatic increase facility is increased at 7.5% or [the UK's Weekly Average Earnings Index],

whichever is the greater and throughout the entire history of the plan, still at 7.5%.”

The Complainant advises that in the Provider's scheduled review letter of 10 June 2016, it

stated that his “next review is not until 1 June 2021.” The Complainant further advises that

he fully understands the review process, as set out in the Provider’s “Regular Premium

Review” brochure, however, he contends that this is contradictory to the Provider’s letter

dated 11 April 2017, which stated that it “improved” the method used to calculate

premiums, for the sum assured increase.

- 2 -

/Cont’d…

The Complainant advises that the Provider informed him that his original contract was not

amended, however, it had changed the way in which the indexation is calculated. The

Complainant asserts that the Provider has denied this is an amendment, as it improves the

plan for the Provider but not client. The Complainant asserts that he was “misled by the

literature” and never expected the premium to rise above the rate of sum assured, on

annual automatic increase. The Complainant also contends that the Provider did not notify

him about the changes to the method used to calculate premiums and the dates on which

it carried out policy reviews.

The Complainant advises that this is opposed to the review increases, which he did expect.

The Complainant wants the Provider to refund his premiums and to stop the unscheduled

reviews. The Complainant also states that if the Provider intends “to change the terms and

conditions of the contract I applied for and signed, it can be cancelled”.

The Provider’s Case

The Provider submits that the insurance plan was distributed through independent financial

advisors and in this case the Complainant was the initial adviser on the plan. The plan is a

regular premium unit linked life insurance and critical illness contract. The Provider states

the plan was issued in the single name of the Complainant on a single life basis or if earlier,

upon admittance of a critical illness claim.

The plan commenced on 14 May 1996 with the monthly premium of £88.66 (eighty-eight

pounds, sixty six pence). This sustained an initial “Accelerated Critical Illness” sum of £80,000

(eighty thousand pounds).

The Provider states that the policy was set up on a maximum cover basis, meaning the cover

provided the highest amount of cover for the lowest possible premium. On a monthly basis

the bulk of the monthly premium is used to meet the charges to be taken that month. As a

result, there is a much lower proportion of the monthly premium to be allocated to the

underlying fund, than would be the case with the standard cover basis plan. As this plan was

taken out on the maximum cover basis, the Provider expected the fund value after 10 years

to be zero, as shown in the illustration which was provided with the policy document. The

Provider asserts that the Complainant availed of the automatic sum assured increase option.

Under this option, a policyholder is entitled to automatically increase the sum assured by

the greater of 7.5% or the prevailing rate of increase in the UK average earning index without

medical evidence.

The plan was reviewable on the tenth anniversary and every five years thereafter, to assess

whether the premium being paid at the time of the review would be enough to maintain the

level of cover chosen for a further five years. The Provider states that its actuary calculated

the required increase in premium for this additional cover. The Provider submits that it

stated in each of its review letters addressed to the clients, when the next review would

take place.