The Department of Finance has commenced an investigation into whether or not legislative change may be required in order to adequately protect consumers who have taken out reviewable whole-of-life insurance policies.
Michael D’Arcy, Minister of State at the Department of Finance, said these policies presented “atypical customer protection issues which may not become fully apparent for many years” and that the purpose of the review was to assess whether legislative change should be considered.
While these reviewable whole-of-life policies are typically no longer sold, many people will have purchased them in the 1980s up to the early 2000s. Their attraction is obvious: no matter when you die, whether you’re 50 or 90, your life assurance policy will pay out.
This is in stark contrast to mortgage protection, for example, which offers cover only on the amount of the loan outstanding, or fixed-term life assurance, which ends at a certain date. Unsurprisingly then, this protection is expensive, but the products were sold in a way that made premiums cheaper in the early years.
Reviewable premiums
Premiums were reviewable after 10 years, and then every five years, moving to annually in later years, and often got to a level which made the premiums unsustainable – but the policy protects you only as long as you keep making the premiums.
Speaking in the Dáil recently, Fine Gael senator Kieran O'Donnell recently told of a constituent who had taken out such a policy for €100,000 when he was 80 years of age.
When he turned 90, the policy was reviewed but he had already paid 1.3 times the value of the life cover into the fund, and if he didn’t continue paying the increased premiums the policy would be worthless. Mr O’Donnell argued that once a policyholder has paid an amount into the fund that is higher than the value of the policy, they should not be required to make further contributions.
While the Financial Ombudsman is often the first port of call for a consumer with a complaint, those with whole-of-life policies are typically excluded from this route due to the ombudsman’s six-year rule. This allows the office to investigate complaints related to mis-selling only in the six years prior to the complaint.
For example, although the ombudsman received more than 700 complaints concerning these insurance policies between 2010 and 2014, it did not find any cases of mis-selling.
Once the examination is complete, the department will provide technical advice to the Minister on whether legislative change should be considered. It is expected that this process will be completed by the summer.
