What is a Whole of Life Policy?
Whole of Life policies are designed to pay a sum of money to a consumer’s family on their death. With the most common types of policy – reviewable – the consumer chooses that sum, pays regular monthly premiums, part of which are used to build an investment fund.
A Whole of Life policy can be very expensive. A consumer is paying for insurance and for the investment. In addition, the risk associated with the investment element can result in a consumers being left with less life cover than required – and unable to protect their family in the way they intended.
Obligations of the Adviser or Sales Person for mis-sold Whole of Life Policy
- Correctly explain the product, its terms and costs
- Inform the consumer of the premium reviews (consumers can find themselves being asked to increase their premiums or accept reduced life cover at a time when they actually need it)
- Make the consumer fully aware of the investment risks
- Take into account any existing cover the consumer already has
How was this product mis-sold?
- Consumers were sold expensive Whole of Life policies when they only needed life cover for a fixed period of time.
- Some were sold the policies when already having appropriate life cover.
- The investment element of the policies may not have been the best advice.
- Many policies were sold with a low start premium to entice consumers which was subsequently subject to review (see below).
Note: Consumers who were not made aware of this could find the premiums increase or the cover decrease at the time that their age makes it too expensive to shop around for a different policy.
The Financial Ombudsman Service (FOS) has issued technical guidance on its treatment of complaints about Whole of Life policies.
Redress calculations must compensate consumers where the policy did not meet their needs.
- They only needed life assurance for a limited time
- They didn’t need life assurance at all
- They were advised to take the policy as a way of saving
- They were advised to take the policy to cover inheritance tax liabilities
- The investment fund was too risky
Where the consumer’s needs would have been better met by another type of policy or none at all, compensation will involve calculations around the refund of some or all of the premiums, plus interest.
When a consumer was unaware that the policy premiums were re-viewable the Financial Ombudsman Service may ask for the policy to be reconstructed to a guaranteed premium plan and to pay for the increased costs in the future.