Although the advisory firm could allegedly prove that it had completed its transparency and quality due diligence, the adjudicator upheld the complaint. The adviser was ordered to pay compensation, with interest.
The recommendation of level term assurance alongside a repayment mortgage is not unusual in the market and is supported by both providers and advisers. I did it myself and 10 years on, having since moved house, I still have LTA cover on a repayment mortgage. But I’ve no intention of suing myself for mis-selling.
This is not the first example and several firms have privately mentioned an increase in similar rulings. The key point seems to be that the notes on file must be clear about why LTA was more suitable; that MPA was also considered; and that the price differential was highlighted and explained. There is not (and arguably should not be) any assumption from the Fos that LTA is automatically superior – they can only go on the notes in the file.
Richard Sadler, head of retail protection proposition at Zurich Insurance, comments: “There are many circumstances where a customer would benefit from life cover over and above the minimum required for the mortgage.
"For example, they might not be able to get cover at a later date or it could become much more expensive due to a deterioration in health. It also provides additional protection for dependants.”
Emma Thomson, head of customer care at LifeSearch, adds: “The price difference is often small making level term assurance better value; another reason why many good advisers recommend this option to their clients.”
Although some advisers have responded to the Fos’ decision with concerns about potential future comebacks should they recommend level term alongside a repayment mortgage, consultant Melissa Collett, formerly senior ombudsman at the Fos, warns advisers against “knee-jerk reactions” in response to this case:
“Just because this mortgage adviser didn't adequately explain the options, doesn't mean that level term can't ever be properly sold alongside a mortgage,” she explains.
“Also, Fos made a number of positive findings: Fos agreed that employee benefits were no substitute for mortgage protection, nor was a full refund of premiums warranted, as the consumer had had the benefit of valuable CI cover. And Fos agreed that the mortgage protection was not compulsory. Plus the actual compensation awarded was fairly minimal. So it's not all doom and gloom."
Short-term income protection (STIP, according to some…)
Anecdotal evidence reveals that demand for short-term income protection (STIP) is growing. However, you will not find many official market reports on the product or even a standard industry definition. This is a cause for concern in certain quarters.
According to providers, demand is being driven by a gradual increasing awareness of the need for an income replacement style product – thanks largely to provider campaigns and the recent high-profile Seven Families initiative – yet a requirement for one that offers the fully underwritten benefits of full-blown income protection but in a more affordable package.
