The Financial Ombudsman Service (FOS) has expressed concern over the complaints it is receiving from claims management companies (CMCs) about whole-of-life insurance.

A spokesperson for the independent complaints adjudicator suggested both that customers struggled to understand the product, and that CMCs were submitting whole-of-life complaints that stood little chance of being upheld. It also called on insurers, advisers and other firms selling the product to ensure they explained the features of this type of insurance more clearly.

The spokesperson said:

“We’d been highlighting for a number of years that the majority of complaints we see about whole-of-life policies are from people who don’t understand how the policies work.

“So we told financial businesses that their sales processes and literature needed to be clear so consumers understood what they were getting in to from the beginning.”

The numbers of whole-of-life complaints being received by the FOS are actually reducing – there were 2,239 complaints in the 2012/13 financial year, then 1,808 in 2013/14 and 1,587 in 2014/15. The FOS annual report for 2015/16 does not give a specific figure for whole-of-life complaints, but gives a combined figure for both whole-of-life and savings endowments, and here the number of complaints received fell from 2,107 in 2014/15 to 1,932 in 2015/16, a reduction of 8%.

The 2015/16 report goes on to say that “after falling for the previous two years, the number of complaints about whole-of-life policies fell again this year.” The report mentions premium increases and changes in the terms of cover following policy reviews as being common reasons for making a complaint.

The report also says that the FOS is working with CMCs to reduce the number of unnecessary complaints about whole-of-life insurance, and acknowledges that many claims managers have improved in this respect. The report also says that the organisation has had “frank conversations with claims managers”, and that it continues to report poor conduct by CMCs to their regulator.

In 2014/15, the FOS upheld 23% of the whole-of-life complaints it received, and in 2015/16 it found in the consumer’s favour in 21% of whole-of-life and savings endowment cases. These figures are well below the FOS uphold rate for all financial products, which is 51%.

Whole-of-life insurance is a complex product. Firms advising on this type of insurance need to make sure that it is suitable for the customer before recommending it, and all firms selling the product need to make sure they fully explain the product features before the contract is finalised.

Whole-of-life policies do exactly what they say on the tin – they cover the insured person for the rest of their life. Hence they are only suitable for covering expenses that will not reduce in old age, such as funeral costs. Term assurance is more appropriate for loans and mortgages with fixed terms, and for insurance taken out to cover the family breadwinner while children are still dependant.

Some whole-of-life policies include an investment element, where how much is paid out on death is partially dependent on the performance of an investment. This type of insurance should not be recommended to customers who are cautious in nature.

The policy terms and conditions will usually allow insurers to conduct policy reviews at set intervals, say every five years, where they may decide to increase the premium payable and/or reduce the sum assured.

It is also important to note that these policies typically have high exit charges if the policyholder wishes to terminate the plan.

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.