The issue revolves around a form of life insurance called, whole of life. According to a report in The Telegraph, the policies are used by around 15 million customers – but now thousands face their cover being cut despite paying their premiums in many cases for 15-20 years.
The Financial Ombudsman in the UK has picked up about 10,000 complaints about the policies during the last six years with numbers said to be rising. The Telegraph quotes the case of one reader who had his life and critical health cover slashed from £113,500 to £36,950 – despite paying Sun Life of Canada monthly premiums for 20 years.
Whole of life differs from other forms of life insurance because premiums and the sums assured are reviewed typically every 10, 15 or 20 years. At this point the cover can be reduced or increased. However, many policyholders claim that they did not realize that the terms could change and the potential reductions were never outlined.
The business has been described as “outrageous” with reductions deemed “horrendous”.
Sun Life of Canada actually closed to new business in the UK back in 2010. A spokesman for the company said that the reader in question had opted for maximum life cover from the outset and had he chosen a lower level of protection his current reduction would not be so significant.
However, some advisors have suggested that insurers have got their calculations wrong and premiums were possibly set too low.
The reader’s complaint was thrown out by both the insurer and the ombudsman as the contract was sold 20 years ago – with complaints needing to be made within three years of when a problem arises. However, the ombudsman told The Telegraph that complaints surrounding the policies are high and that the literature needs to be clear.
A Canadian life insurance company is at the centre of a storm in the UK as up to 10 million policyholders face the possibility of their life cover being cut.