A life insurance policyholder who took out cover in 1991 had his potential payout slashed by over £112,000 in a span of 10 years.
David Clayton, who purchased a Royal Insurance Flexible Protection Plan, has been told that his projected benefit is now down to £50,238, the
Telegraph reported.
According to the report, Clayton was informed in 2006 that the guaranteed death benefit was £162,912, up from £76,000 when he first took out the cover.
But this year, Clayton was told that the payout has been cut by more than £112,000.
To maintain the new projected payout, Clayton’s premium would also increase to £63, which he refuses to pay, the
Telegraph report said.
Clayton, who already paid £12,500 for the policy, said that nobody explained how the plan could be dramatically changed.
“I’m caught between the devil and the deep blue sea. The longer I live, the less I’ll get,” the
Telegraph quoted Clayton as saying.
Phoenix Life, which took over Clayton’s policy, has raised a complaint on his behalf to “thoroughly investigate the allegation that he was not made aware of the potential impact of policy reviews.”
Clayton is among the thousands of policyholders who took up supposedly cheap insurance cover about 20 years ago who are now being hit with huge additional costs or payout cuts.
The
Telegraph report said these “reviewable whole of life” insurance policies were sold between the late 1970s and mid-1990s by sales teams who often obtained large commissions.
According to the report, the Financial Ombudsman Service received nearly 1,500 complaints in 2015. Majority of them were about increased premiums or reductions in the assured payout.
The regulator is studying how the policies were sold and if the customers were informed about the policy reviews.
Just less than 20% of last year’s complaints were upheld, the report said.
“The plans are confusing as the word 'life’ would suggest a lifetime of cover,” Martyn James, who until recently worked for the ombudsman, told the
Telegraph.
“It makes you wonder how clear the policies are and how well they are explained when they are sold.”
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