A guide to mis-sold life insurance policies

What is mis-sold insurance?

Insurance is considered mis-sold when the customer hasn’t been given accurate information and advice about how the policy works.

Insurance providers have a duty to make sure the insurance they’re selling is suitable for a consumer’s needs and circumstances.

How can an insurance policy be mis-sold?

There are many ways an insurance policy can be mis-sold.

These include not having the risks explained, being given unsuitable advice or not being given relevant information.

The end result is an insurance policy that doesn’t meet your needs.

Examples include:

• You were pressured into buying the cover because you were told, or it was strongly implied, that you didn’t have any choice

• You were recommended, and then sold, insurance where the terms and conditions weren’t explained properly

• You weren’t informed about key exclusions to the policy

• You were sold a policy you wouldn’t be able to claim on, such as an income protection policy while you were unemployed or retired

• You were sold a policy that didn’t give you the cover you were promised

• You were sold additional cover, such as critical illness cover, without it being properly explained

• You weren’t told about additional charges for advice, or how premiums and benefits could change over the life of the policy.

How could a life insurance policy be mis-sold?

One way a life insurance policy could be mis-sold is if you were persuaded to buy a complex or expensive policy without being told about a simpler, less expensive type of cover.

For example, if a provider only told you about a whole of life insurance policy, instead of cheaper term cover.

It could be the case that, by not making clear there were other, more suitable, life insurance options, you’ve been misled by the provider.

What should I do if I’ve been mis-sold a life insurance policy?

First you need to complain to the insurance provider and give it the chance to put things right. Most complaints should be sorted out this way.

These are the steps to take:

1. Write down the reasons you think the policy was mis-sold.

2. Collect evidence to back up your case, including any details of how you bought the policy and what you were told by the provider at the time.

3. Make a formal complaint to the provider which sold you the insurance policy. You can usually find out how to make a complaint from the documents you were given or from the provider’s website. Make sure your letter or email clearly states the factual reasons you think your policy was mis-sold. Include a copy of any proof of the mis-selling – don’t send the originals.

4. Keep copies of the correspondence and a record of any phone conversations about your complaint, including dates, times and names of anyone you speak to.

The provider is required by law to deal with the complaint within eight weeks of receiving it.

It'll write to you with its response to your complaint and how it intends to resolve it. If it rejects your complaint, it should give you reasons for doing so.

The letter should also tell you how to take the matter further if you’re still unhappy.

For more help, see the Financial Ombudsman’s guide to making a complaint about a financial business.

What can I do if my mis-selling complaint is rejected?

If the insurance provider fails to get back to you within eight weeks, or you’re not happy with their final response, you can lodge a complaint with the free Financial Ombudsman Service (FOS).

Don’t delay – you can only go to the FOS within six months of the insurance provider’s final response to your complaint.

To be assessed by the FOS, your complaint also needs to be raised within six years of being mis-sold the life insurance policy – or within three years of you noticing that something was wrong.

But you have a right to complain even if you’ve finished paying your premiums and aren’t insured any more.

Read examples of how complaints about whole of life cover were resolved by the Financial Ombudsman.

Can I get compensation for mis-sold life insurance?

If your claim is successful, your insurance provider should compensate you appropriately.

Depending on the circumstances, you might receive:

• A replacement policy that is more suitable for your needs and a refund of the excess premiums you paid plus interest

• A refund of all the premiums you made plus interest, if you didn’t need a policy at all

• Compensation based on the average market premium for the policy when it was mis-sold

• Compensation for any distress or inconvenience you suffered due to being mis-sold a policy.

If it turns out that the insurance provider or financial advisor that mis-sold your policy has gone out of business, you can complain to the Financial Services Compensation Scheme instead.

Should I use a claims management company?

This is entirely up to you. However, most of these types of organisations, which operate on a ‘no win, no fee’ basis, will take a large slice of any compensation you receive.

The system is designed so that people can make claims themselves.

If you do, you won’t have to hand over any compensation you receive for being mis-sold. And remember, you’ll have to dig out all the paperwork for the claims company in any case.

What can I do to avoid being mis-sold life insurance?

We all have better things to do with our time than sorting out life insurance mis-selling, so it’s good to know how to avoid it happening to you in the first place.

Don’t rush into buying life insurance

If someone tries to pressure you into buying, walk away and find a different advisor or provider who’ll answer your questions and explain what you need to know at your pace.

Consider your circumstances

Make sure you can afford any policy you’re considering and that it gives you the financial protection you personally need.

Check what cover you already have, to avoid doubling up

For example, do you have death in service cover from your employer?

Make sure you read the documents

And understand what you’re buying before you sign on the dotted line. For example, make sure you understand:

• What you’ll be paying

• If the price can go up

• What happens if you miss a payment

• When the policy will pay out and when it won’t

• If and how the payout could change

• Who the payout will go to and whether that can be changed.

If you’re still not sure whether a policy is right for you, you may want to get expert advice from a solicitor or tax advisor.

And it’s good to know that many life insurance policies have a 30 day-cooling-off period if you do change your mind or realise that a policy isn’t right for you.

During this time, you can usually get a refund for any premiums paid, less any days that the policy was active.

See more about what you need to know in our guide to life insurance.

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