The Fos recently ordered an IFA firm to pay compensation to a client who claimed that she should not have been sold a protection policy back in 2007, which consisted of level term assurance and critical illness, to protect her repayment mortgage.
She claimed the business told her that taking out the policy was a condition of obtaining the mortgage and she did not need it because she had employee benefits.
Although the advisory firm could allegedly prove that it had completed its transparency and quality due diligence, the adjudicator upheld the complaint. The adviser was ordered to pay compensation, with interest.
The recommendation of level term assurance alongside a repayment mortgage is not unusual in the market and is supported by both providers and advisers. I did it myself and 10 years on, having since moved house, I still have LTA cover on a repayment mortgage. But I’ve no intention of suing myself for mis-selling.
This is not the first example and several firms have privately mentioned an increase in similar rulings. The key point seems to be that the notes on file must be clear about why LTA was more suitable; that MPA was also considered; and that the price differential was highlighted and explained. There is not (and arguably should not be) any assumption from the Fos that LTA is automatically superior – they can only go on the notes in the file.
Richard Sadler, head of retail protection proposition at Zurich Insurance, comments: “There are many circumstances where a customer would benefit from life cover over and above the minimum required for the mortgage.
"For example, they might not be able to get cover at a later date or it could become much more expensive due to a deterioration in health. It also provides additional protection for dependants.”
Emma Thomson, head of customer care at LifeSearch, adds: “The price difference is often small making level term assurance better value; another reason why many good advisers recommend this option to their clients.”
Although some advisers have responded to the Fos’ decision with concerns about potential future comebacks should they recommend level term alongside a repayment mortgage, consultant Melissa Collett, formerly senior ombudsman at the Fos, warns advisers against “knee-jerk reactions” in response to this case:
“Just because this mortgage adviser didn't adequately explain the options, doesn't mean that level term can't ever be properly sold alongside a mortgage,” she explains.
