- Customers being told to double their premiums or cover will be reduced
- 'Death payments' are being cut by around 70 per cent in extreme cases
- 'Whole of life' insurance which covers families and mortgage is affected
- Experts said the cutbacks from major firms were 'absolutely outrageous'
By Ekin Karasin For Mailonline
Published: | Updated:
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132 View commentsUp to 15million life insurance holders could have their payouts halved because insurers did their sums wrong.
Major insurance firms are telling faithful customers who have paid their annual or monthly premiums for up to 20 years to either double their premiums - or face eye-watering reductions to their cover.
'Death payments' are being slashed by an average of 50 per cent and cut back by 70 per cent in the worst cases, with experts claiming companies miscalculated customers' policies.
Up to 15million life insurance holders could have their payouts halved because insurers did their sums wrong
Customers that were struck by the cutbacks were 'whole of life' insurance policyholders - which is typically bought by people wanting to cover their families and mortgage in case they die.
With 'whole of life' insurance, premiums are reviewed usually after 10, 15 and 20 years, when the level of cover can be altered.
Reports have emerged that thousands of affected customers have had their complaints rejected by the Financial Ombudsman on grounds that their policies are 'too old'.
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One rejected customer had paid their premiums to insurance firm Sun Life of Canada since the 80s to safeguard his mortgage.
He was told his cover would be cut by a shocking 70 per cent - taking him from£113,500 to £36,950, an investigation by the Sunday Telegraphreported.
A spokesman for Sun Life of Canada said other policyholders were in a similar situation, being told their cover would be reduced by a similar amount.
'Death payments' are being slashed by an average of 50 per cent and being cut back by 70 per cent in the worst cases
Critics branded the cutbacks 'outrageous' and blamed insurers for being 'over-optimistic' with their calculations.
Alan Steel, chairman of Steel Asset Management, a financial adviser, said:'The whole business is absolutely outrageous.
'The truth is many of these contracts paid a high commission and that is why they were sold.'
Danny Cox, head of financial planning at the financial services firm Hargreaves Lansdown, said:'The main reason this has gone so wrong is that underwriters assumed the investments underlying these policies would make double-digit returns, but in fact they have performed far worse.'
The Financial Ombudsmanhas had over 10,000 complaints about whole-of-life cover plans in the last six years and upheld only around 20 per cent of cases.
Some customers even claimed they have never been informed about the reviews, while others claimed the reviewing system was not explained clearly enough so that they understood how severely the terms could change.
A spokesman for the Ombudsman said: 'Complaints about these contracts are consistently high and usually linked to the review dates.
'Most complaints we see about whole-of-life policies are from people who don't understand how the policies work.
'We told financial businesses that their sales processes and literature need to be clear so consumers understood what they were getting into from the beginning.'
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