Sesame has admitted it failed to explain properly how a reviewable whole of life policy operated.
In 2003 a client, referred to as Mrs D, was advised to take out a reviewable whole of life policy with a sum assured of £300,000.
But the policy would be subject to reviews, with the first on the 10th anniversary.
Future reviews were likely to mean significant changes would be needed either to the premium payable or the sum assured.
Sesame accepted the policy wasn’t fully explained to Mrs D as there is no reference to it being subject to reviews.
While the adviser’s letter refers to it being on a maximum cover basis, there is no explanation of the implications of this.
Ombudsman Doug Mansell said it was clear the policy didn’t meet Mrs D’s requirements but had to review the case after Sesame failed to agree with a Financial Ombudsman Service adjudicator on how much compensation was owed.
He said: “On the whole, I can’t be sure what Mrs D would have done had she understood the policy recommended wasn’t suitable.”
As a result, Mr Mansell backed the adjudicator and rejected Sesame’s proposal for how to calculate the compensation owed.
Mr Mansell said the premiums paid should be refunded by Sesame less the cost of life cover.
The policy was intended to pay Mrs D’s inheritance tax liability on her death, and was written in trust.
The policy was set up on a maximum cover basis, which meant it offered a high level of life cover for a relatively low premium.
Sesame had suggested to calculate how much compensation was owed there should be a comparison of the cost assuming Mrs D had taken a policy on a standard cover basis.
But Mr Mansell ruled it was not clear how this calculation should be carried out plus a standard cover policy for the same sum assured would have required a much higher premium.
Given Mrs D’s circumstances and limited income, Mr Mansell said this wouldn’t have been a viable option for her.
Alternatively, Mrs D could have taken out a standard cover policy for the same premium she was prepared to pay but this would have meant the sum assured was greatly reduced.