SERVICE: Life
OUTCOME: Not upheld
Issues: Misselling/ misleading information/ misrepresentation, Transfer or withdrawal of funds
Summary: Mr Y’s* complaint was not upheld, because there was no evidence the insurer had acted in bad faith. Mr Y had misunderstood the surrender value of the policy.
Mr Y was the owner of a whole of life policy with the insurer, arranged in 1963 when he was a child. Annual premiums were paid until about 1984.
In 2021 and 2023, the insurer sent letters, trying to locate Mr Y. In February 2023, Mr Y responded to the insurer, and it provided information to him about the policy, which had premium arrears of $978 and a net cash value of $288. The insurer told Mr Y he did not have to pay the premium arrears, unless he wanted to keep the life policy in place, saying that the policy would eventually lapse when the outstanding premiums outweighed the gross value.
Mr Y said he wanted to cash up the policy. However, because the insurer had indicated there were going to be some changes to the policies, he thought he would wait to see whether the changes would result in a higher payment.
In September, October and November 2023, the insurer sent Mr Y letters about the premium arrears, which had increased to over $1,000, asking him to make a minimum payment of $117 to prevent the policy from lapsing. In November 2023, the insurer told Mr Y that the surrender values had been reviewed and, as a result, the surrender value of the policy had been exceeded by the arrears, meaning the policy would lapse.
Mr Y made a complaint, saying he believed the insurer had acted in bad faith to avoid paying him the surrender value of the policy, because he believed it had told him he “did not have to do anything” until the changes were confirmed. He believed the surrender value should have been about $2,000, which would cover any arrears.
The case manager’s assessment
The case manager believed Mr Y had mistaken the life cover under the policy, which was just over $2,000, for the surrender value. However, the surrender value was not equal to the amount of life cover. Rather, it was set out as the net cash value, which was an amount available after the premium arrears were deducted.
While Mr Y believed the insurer told him he did not have to do anything further, the case manager did not believe that this meant it was negating its previous advice to him that the premiums were in arrears, accruing interest, and would eventually cause the policy to lapse. There was no evidence the insurer had changed any rules or acted in bad faith.
By the time of the Assessment, the insurer had completed another review of surrender values, showing the net cash value after premium arrears was $58. The case manager noted that this amount may change again, either as the arrears increased, or if a further review reduced the surrender value of the policy below the amount of the arrears.
*Name has been changed
Complaint No: 00230578