The Financial Ombudsman Service (FOS) has ruled against City of London advisory firm SPF Private Clients, after it recommended level term assurance to cover a client’s capital repayment mortgage.

Decreasing term assurance is perhaps a more common recommendation to cover a reducing mortgage, and in this case the FOS took the view that this would indeed have been the most suitable recommendation.

The FOS adjudicator rejected part of Miss M’s complaint, where she said that she should not have been recommended term assurance with added critical illness cover as she had employer sick pay.

However the adjudicator did find in her favour when ruling that decreasing term assurance would have been more appropriate.

SPF attempted to justify its recommendation by saying that the mortgaged property was purchased on a shared ownership basis and that therefore level term assurance would have been useful had she subsequently increased her ownership share. However, when considering the case at the appeal stage, ombudsman Julia Chittenden said that the case file suggested that Miss M had no intention of purchasing an additional share.

SPF also argued that level term assurance would be easier to transfer to another mortgage in the future, but Ms Chittenden also rejected that argument by saying the client could have stopped a decreasing term policy and replaced it with a level term policy if her circumstances had indeed changed.

SPF was ordered to repay the difference between the level term premiums she will pay over the term of the plan, and the premiums she would have paid on a decreasing term plan, plus an allowance for interest at 8%.

Firms that give protection advice need to make sure that their recommendations are suitable, and that they provide all necessary information to their clients. Some within the industry used to believe that it was impossible to mis-sell an insurance contract, but the payment protection insurance scandal has surely demonstrated that it most certainly is possible.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.