In this occasional series of blogs, I recall some memorable cases which I have dealt with.

Miss H and her Zurich protection insurance

One of the most common issues that arises is that of over-selling. This is not the same as mis-selling per se. I consider that term better describes a situation where the policy sold was wholly unsuitable.

Over-selling is, instead, the practice of identifying a client’s potential need in a certain area but selling a product that is effectively a sledgehammer to crack a nut. This often crops up in the field of life and protection insurance. Just how much life cover does someone need and what kind of product is best suited to meeting that need?

I find that a salesman will often try to sell a Rolls Royce when a Ford would do the job. Why? A Rolls Royce costs more and earns the salesman more.

Miss H’s case is a typical example of this. She was a young teacher, taking her first step on the property ladder. She took a repayment mortgage and the most appropriate life policy to match that would have been Decreasing Term Assurance. The DTA death benefit starts at the same level as the amount of the mortgage and declines each year as the capital owed falls with each mortgage repayment. It is the cheapest type of life insurance there is.

Miss H’s mortgage lender insisted she had life cover (even though she was single) so DTA should have been the obvious choice.

Zurich sold her a combined package of life insurance and income replacement insurance. The life insurance element provided a level amount of cover which would stay the same throughout the term. This is more expensive than DTA. The income replacement insurance would provide an income for a year if she were unable to work due to illness. The combined package was three times more expensive than simple DTA.

My view of the income replacement element was that as a teacher, Miss H enjoyed very good in-work benefits which would protect her in any event if she were unable to work for any reason. It did not justify the cost – particularly as she was a first time buyer and on a very tight budget with lots of expenses to meet.

It was a classic case of over-selling. Zurich did not initially agree (as often happens, the selling company will always try to defend itself first) but after much debate, it did concede the package sold was not wholly suitable given Miss H’s circumstances. Zurich refunded the premiums she had paid (with interest) and set up a new DTA policy as a replacement.