The mis-selling of payment protection insurance (PPI) has dominated the headlines in recent years, but did you know life insurance can also be mis-sold? If you have questions like:
- What’s mis-sold insurance?
- What constitutes mis-sold life insurance?
- How to claim back mis-sold life insurance?
- How to complain about mis-sold life insurance?
Let this guide, prepared by award-winning broker Reassured, answer all your mis-sold life insurance queries.
What is mis-selling?
Now you know that life insurance can be mis-sold, let’s establish how it’s classified as such. “Mis-selling means that you were given unsuitable advice, the risks were not explained to you or you were not given the information you needed and ended up with a product that isn’t right for you.”
Regarding life insurance there are 2 areas which can constitute mis-selling:
- You were sold an unsuitable policy
- You were pressured into buying a policy
Let’s look at each of these areas in more detail.
Sold an unsuitable policy
A company selling you life insurance, whether it be an insurer, a bank or a broker, has an obligation to ensure that the cover meets your needs. Being suitable means that you’re eligible to make a successful claim and that you have a genuine need for the cover provided. In contrast, unsuitable examples include being sold a policy:
- Which fails to provide the cover you were promised
- Which you’re unable to claim on, (you weren’t told about exclusions on the policy)
- That you were never able to claim on because of a medical condition
- That provided much more coverage than you require
- Nobody fully explained the policy terms and conditions
- You were unemployed at the time of application
- You were misadvised on the right type of policy cover
Pressured into buying a policy
It can also constitute mis-selling if you were pressured into buying life insurance. For example:
- If a company implies that having cover is compulsory if you have a mortgage
- If the risks of not having life cover were over-exaggerated
- If you were pressured to take out cover today as the price quoted would not be available tomorrow.
Mis-sold life insurance with mortgage
Many people take out life insurance when they purchase their first property. This protects what is for most people their single biggest financial investment. Contrary to some people’s beliefs, it’s generally not compulsory to take out life cover when taking out a mortgage (although often a very good idea).
Some mortgage lenders may request that you do take out cover in order to mitigate their risk.
Some mortgage lenders may, however, request that you do take out cover, to mitigate their risk. Being told it’s compulsory when it isn’t constitutes mis-selling and you may be eligible to claim back any premiums you’ve paid.
People who don’t take out a life cover when they buy a property often buy one when they get older, some even take a life insurance for over 70s.
Questions on life insurance
Life insurance policies are generally similar to other insurance policies you may hold. Monthly premiums are paid to the insurance company, who in turn provides you with an agreed upon level of cover in the event of your death or illness. The insurance company will pay out the agreed upon amount of the cover to your beneficiaries or your estate in the event of your demise.
Life insurance policies are designed to pay out benefits in instalments or a lump sum when the insured party passes away. While insurers may take some time to examine and review the claim, they typically proceed to pay out, deny the claim, or request additional information about the circumstances.
A life insurance policy remains in effect as long as the premiums are paid, as is the case with most insurance policies. Any insurance policy may lapse or be terminated by the insurer if a premium is not paid on time. Denied claims due to missed payments are very common and insurers use this as an excuse to deny a pay out, as they consider the terms of the agreement to have been breached.
Mis-sold life insurance critical illness
As well as standard life insurance you may have been unnecessarily sold critical illness cover, perhaps as an add-on to life cover. Critical illness cover provides the policyholder with additional protection. It pays out if you were to fall ill with a critical condition covered by the policy.
Whereas life insurance pays out and benefits your loved ones after you’re gone, critical illness pays out when you’re alive. These funds could help replace a lost income if you’re unable to work. Again, if you were sold an unsuitable critical illness policy or pressured into buying, then you could claim back your investment.
You can still claim compensation even if you’ve not lost out financially
Interestingly, even if you have not lost out financially you may still be able to make a successful compensation claim. It’s all about whether the product sold is right for you and does what was promised. If it doesn’t you may still be entitled to claim the money back which you’ve invested.
The mis-sold complaints process
If you believe you’ve been mis-sold life insurance you’ll need to follow the complaints process.
1. Gather all the necessary information to support your complaint
- You don’t need concrete proof at this stage
- Gather as much information as possible
- Stick to the facts, don’t offer subjective opinions
2. Complain directly to the company involved
- Find out what their internal process is and lodge your complaint
- If the company respond, but you’re not happy with their response, you have 6 months to take your case to the Financial Ombudsman
- If you don’t hear back at all within 8 weeks you can also raise your case to the Financial Ombudsman
3. Ask the Financial Ombudsman to investigate, (see below)
- Generally speaking, that’ll be the final step in the process
- In the unlikely instance where the Ombudsman makes a decision you’re unhappy with you have the option of taking your case to court, (but this is expensive)
- Alternatively, you can then ask for your complaint to be reviewed by a senior Ombudsmen.
Mis-sold insurance – Financial Ombudsman
If you feel you’ve been mis-sold life insurance, your first step is to lodge a formal complaint with the company in question. Hopefully, by doing this the case can be resolved and if appropriate you’ll be compensated for what you’ve lost. However, if you’re unable to resolve the issue directly, you can then refer your complaint to the Financial Ombudsman.
The Financial Ombudsman is an independent arbiter there to support and guide you. They have the power to force organisations to pay you your money back. To get in touch with the Ombudsman you can simply call them on 0800 023 4567. Alternatively, you can fill in a complaint form online. They’ll review your complaint and then contact the company to ask for proof you were not mis-sold a policy before making a judgement.
Is there a time limit in which you have to claim?
Yes, when it comes to the Financial Ombudsman there are time limits in place. If you want to lodge a complaint there’s a time limit of 6 years from when you were sold the policy or 3 years from when you noticed there was an issue. Remember, before going to the Ombudsman you first need to go directly to the company in question.
Can you claim compensation on expired policies?
Yes, as long as if you’re referring your claim to the Financial Ombudsman it falls within the above timeframes. You can always lodge a complaint direct to the company outside of these timeframes. However, if your case cannot be resolved you’ll not be able to rely on the Ombudsman to assist you further.
How will you be compensated?
If your mis-selling complaint is accepted by the company or upheld by the Financial Ombudsman you should be refunded:
- The cost of the life insurance premiums you have paid to date
- Any interest you were charged on the cost of your policy
- An additional 8% interest based upon the total you should be paid for the above
As you can see, if you believe you’ve been mis-sold life insurance it’s worth making a claim.
What if the company involved is no longer in business?
If the company that mis-sold your policy has been acquired by another business, then it’s likely that the liability will pass over to the new parent company. You may still be able to get compensation from the Financial Services Compensation Scheme (FSCS) if the business is no longer trading and not been sold.
‘No win, no fee’ companies
You may be tempted by the many ‘no win, no fee’ companies advertising their services. Ultimately this is your decision, however, the Financial Ombudsman is free and you’re just as likely to win your claim. Remember, if you use one of these companies and you win the case they’ll be taking their cut from your compensation payment.
Ensure you’re protected following a claim
If you have dependants who rely on you financially the most important thing is that you have cover protection in place. If you have previously been mis-sold life insurance you may have been put off getting cover altogether. However, not having a policy in place can leave your loved ones financially exposed.
For example, if you were no longer around could your family meet future living costs and monthly mortgage repayments? The trick is to ensure your life is protected, but that the policy you secure is suitable in terms of the level, type and the cost of cover. A life insurance broker can help provide this reassurance.
Don’t be mis-sold life insurance, use an FCA registered broker
A great way to ensure you secure the right policy with the right amount of cover is to use an FCA registered broker. We’re an award-winning non-advised brokerage. This means we’ll use the information that you provide, (age, smoking status, cover amount, term length), before giving you multiple quotes to choose from.
This allows you to make an informed decision on the most suitable cover, ensuring you’re not mis-sold a policy. This differs from an advised brokerage who’ll make suggestions on what policy they think you should take out. Here are some of the key benefits of using a credible broker:
- Regulated by the FCA, demanding the highest of standards
- Strict internal compliance processes
- We work to find you the best deal
- We won’t pressure you into taking out an unsuitable policy type
- We can help unpick any industry jargon you don’t understand
- We can help write your life insurance in trust
- We never charge a fee for our service