Term Assurance 

Zurich argues complainant should ‘live with consequences’

Zurich argues complainant should ‘live with consequences’

Zurich has failed to sway the Financial Ombudsman Service with their argument that a couple who bought reviewable life policies should deal with the consequences.

A couple, referred to as Mr and Mrs R, complained they were mis-sold reviewable whole-of-life policies by Zurich Assurance Ltd in 1993 when they were in their 20s and expecting their first child. 

The pair met with an adviser as they were taking a mortgage of £96,000 with a term of 25 years and they wanted life policies to cover it. The policies that were recommended were reviewable after 10 years and replaced an existing joint endowment policy. 

The fact find showed they were concerned to sort out mortgage cover but advised to take out separate policies with critical illness cover which allowed for the mortgage to be repaid on early death or diagnosis of a critical illness. 

The policies were surrendered shortly before the tenth anniversary. 

The business rejected a complaint made on behalf of the couple by a claims management company and said it thought the policies were suitable as Mr R wanted cover for his family and to keep the premiums low. 

But the Financial Ombudsman Service upheld the complaint as the cover would drop to £24,000 after 10 years and leave the mortgage uncovered. 

In order to maintain the cover, the ombudsman ruled the premiums were likely to have had to increase significantly so a level term policy would have been more appropriate. 

Zurich argued Mr R was fully aware of the plan being recommended and it provided additional family cover over and above mortgage cover. 

Zurich insisted Mr R was aware that the premiums would have to increase after 10 years and he and his wife had made an informed decision. 

But in a final decision, ombudsman Ivor Graham said while he appreciated the point made by the business that Mr and Mrs R made an informed decision and should, in effect, live with the consequences he did not “find this persuasive.” 

Mr Graham said: “They sought advice as to cover for their mortgage and it is clear this was their main need. In the course of the discussion they also indicated that family cover would also be good. 

“They were sold policies which were less than ideal for their main requirement. In their circumstances I would have expected to see a recommendation for joint term assurance linked to the amount and term of the mortgage. 

“I cannot see that separate whole of life policies, especially reviewable ones were appropriate for their circumstances.”

Zurich was told to compare what Mr and Mrs R had paid towards their whole of life policies had they been given a joint level term assurance policy with a sum assured of £96,000 over a period of 25 years. 

The policy should be set up with a term of 25 years, but Zurich would only need to work out what Mr and Mrs R would have paid till the point they cancelled their policy.