Bank staff under growing pressure to sell insurance are switching thousands of
confused customers to policies with less cover, according to independent
financial advisers who have contacted Times Money.
Advisers are up in arms over the practices of some of the UK’s biggest banks,
which are routinely calling customers to push inappropriate and costly life
insurance, critical illness or accident, sickness and unemployment cover to
their clients.
In some cases, if it means securing a sale, bank staff are trying to switch
customers to different policies without fully explaining the consequences.
Banks are putting staff under pressure to sell protection insurance to
existing customers to make up for a shortfall in profits from mortgages and
other loans, advisers claim.
Donna Hopton, director of Cherry Find.co.uk, the broker directory website,
says: “Cross-selling protection insurance is increasingly important for
lenders. Often, within weeks of a broker placing a mortgage, the lender will
begin calling the customer directly pushing policies and anything else that
it can sell.
“Some of our mortgage brokers have reported instances where bank staff have
complained of unrealistic targets for selling life and critical illness
cover. While this continues, more consumers will be sold to inappropriately.”
An increasingly common tactic that banks use is to promise to cut the cost of
a borrower’s life and critical illness cover by moving him or her to a life
and terminal illness policy.
Matt Morris, of Lifesearch, the protection specialist, says: “Our advisers
regularly encounter the problem of banks switching customers from critical
illness to terminal illness cover. It is a major concern that needs to be
investigated, but in the meantime consumers need to remain vigilant.”
Someone with critical illness cover can make a claim if given a diagnosis of
a wide range of conditions that are serious but not fatal, including
blindness and cancer. Policies pay out a tax-free lump sum, which can be
used to pay off debts or bills while the policyholder is unable to work.
Terminal illness cover, which is commonly available free with life policies,
pays out a lump sum only if a policyholder has a fatal condition diagnosed
and is given only 12 months to live.
Kevin Carr, head of protection at Prudential, the insurer, says: “It is far
more likely that an individual will suffer from a critical illness. Because
of this, critical illness cover is generally five times more expensive than
an equivalent terminal illness policy.”
The most competitive critical illness policy on the market for a 35-year-old
male non-smoker, based on a benefit of £100,000 over a 25-year term, is from
LV= and costs £39.96 a month. A life and terminal illness policy for the
same policyholder is £9.10 a month from Legal & General.
One independent mortgage broker and financial adviser, who asked not to be
named, says: “I organised critical illness cover for a client a year ago but
recently received a cancellation letter from the provider. I contacted the
client, who told me that he had switched policies after visiting his local
Halifax branch. Staff had promised to cut significantly the cost of his
critical illness premium. However, it turned out he had actually been
transferred on to a life and terminal illness policy, leaving him with very
little of the protection he needed.”
Brokers warn that if you discover that a policy is unsuitable after switching
there may be little chance of redress. Banks claim to be giving consumers
only information about financial products, rather than advice.
Mr Morris says: “If you sell without advice, as banks do, the customer is
technically responsible for the purchase, not the seller, so the consumer is
left with no ombudsman protection.” It is not just critical illness
policyholders who are being targeted by bank staff. Customers who are quoted
cheaper premiums for accident, sickness and unemployment insurance should
also take care.
If you are approached, make sure that you check how long you will have to wait
after stopping work before you receive your first payout. The most expensive
policies will pay out after day one, while others could delay a payout for
up to a year or more.
Emma Walker, of moneysupermar ket.com, the price comparison website, says: “If
you have excellent employer benefits you may not need a payout for up to a
year.
“But others could be tempted by the fall in price without checking their
circumstances, which could lead to a longer period without protection.”A
Halifax spokesman says: “Our financial advisers are trained to discuss life
cover and critical illness cover as two separate and distinct protection
needs. Terminal illness cover is a feature on some of our life cover plans,
but not suggested as an alternative cover for an existing critical illness
plan.”
Key questions
What type of cover do I need?
Life insurance policies pay out a lump sum upon your death. Most policies come
with terminal illness cover included, which ensures that the lump sum will
be paid out if you have a condition diagnosed that will result in your death
within a year.
Critical illness cover pays out if you are given a diagnosis of a serious
condition that is not fatal.
How many conditions are covered?
Policies available from banks typically cover only the minimum 23 conditions
as set out by the Association of British Insurers on its website,
www.abi.org.uk. Specialist providers will cover up to 40 conditions.
What other types of protection insurance are available?
Income protection will pay out for a period of time if you are unable to work
because of an accident or sickness.
Accident sickness and unemployment (ASU), which is favoured by banks, is
similar to income protection but it tends to be cheaper and has more
exclusions. Most policies will not pay out if you are off work with back
pain or stress, for example.
The payout rate on ASU claims is about 50 per cent, according to LifeSearch,
the protection specialist, compared with about 95 per cent for income
protection.
What else should I look out for?
Protection policies such as critical illness or ASU from the high street banks
will often be reviewable after five years. This means that the cost of
premiums can, and probably will, go up. Specialist deals, available through
brokers, offer guaranteed policies with a price that is fixed.
How does payment protection insurance (PPI) compare with these policies?
The main difference between PPI and similar types of insurance, such as income
protection, is that it is sold alongside a specific product, such as a loan.
It is similar to ASU, but the latter is a standalone policy that will pay
out monthly to cover any payments. PPI is tied to one specific loan or
credit card.
Where is the best place to get advice?
Not your bank, which will give information only on its own policies, which are
likely to be less comprehensive or more expensive.
Visit unbiased.co.uk or CherryFind.co.uk for a list of independent financial
advisers.
Case study
Robert Killeen, a retired taxi driver from Southport, Merseyside, took out
critical illness cover when he applied for two Halifax credit cards. It was
sold to him as part of two payment protection insurance policies (PPI).
This year the 68-year-old was found to be suffering from cancer and wrote to
Halifax asking for the forms needed to claim against the critical illness
element of his PPI. The bank supplied the forms, but then wrote to Mr
Killeen explaining that because he was more than 65 years old he was not
able to claim.
He says: “Why did Halifax keep on collecting my money if I was unable to
claim?”
Halifax has apologised and offered to refund the cost of his premiums. A
spokesman for the bank says: “We wrote to Mr Killeen in January 2006 to
inform him that his credit card repayments policy will change following his
65th birthday and critical illness cover will no longer apply.
“However, as Mr Killeen has been a loyal customer for 40 years, we have
refunded his premiums since he turned 65 and as a gesture of goodwill agreed
to write off his credit card balances.”
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