Following 10 weeks in hospital Mr E asked his adviser to reduce his life cover from more than $260,000 to $100,000 to reduce his premiums.
When Mr E became terminally ill, an early payment for life cover was paid, but trusties of his estate later challenged the insurer saying it should pay the original amount to his partner.
When the insurer refused, a complaint was lodged with dispute resolution service the Insurance & Financial Ombudsman Scheme (IFSO) which released its findings as a case study.
The IFSO Case Manager writes that Mr E contacted his financial adviser by phone saying he wanted to reduce his cover because the premiums were too high. Mr E told the adviser he had been in hospital with an undiagnosed condition – the adviser suggested he wait until he had a diagnosis, or discuss the matter with his wife or doctor, but Mr E wanted to proceed.
Four days later, the adviser emailed a letter to Mr E confirming the reduction in cover from $268,000 to $100,000. The adviser asked for both Mr E and his wife Mrs E to sign it – even though Mrs E was not a policyholder – to ensure they both agreed.
Once the change was confirmed, Mr E contacted his adviser to cancel the policy. The adviser recommended against it and did not proceed with the request.
Mr E’s condition deteriorated and a claim made for early payment of the life cover, which the insurer paid.
Mr E’s estate complained saying the adviser and insurer had failed in their duty of care to Mr E, by not requesting further information about his medical condition before proceeding with the reduction request.
The information provided did not suggest Mr E had a terminal illness…
IFSO states: “It is not uncommon for people to reduce life cover as they age, because of increasing premiums and Mr E had already indicated [to his adviser] he intended to do so.
“As the reduction request was co-signed by his wife, it could have been a reasonable assumption the hospitalisation was not for a life-threatening condition.
“The information provided did not suggest Mr E had a terminal illness, or was otherwise incapable of making a decision to reduce cover, to put the insurer on notice to do something more to protect him.
“The reduction request clearly set out what Mr and Mrs E were agreeing to and the Case Manager did not believe the adviser or the insurer needed to do more, to ensure Mrs E understood the request, when he had initiated it.
“Therefore, the (IFSO) Case Manager was unable to find that the insurer breached its legal obligations and could not require it to pay the original sum insured to the Estate. The insurer declined to pay the full amount on an ex-gratia basis.”