More work needs to be done on policy ownership
Getting the ownership of life insurance policies right is critical; but one bank has no idea, Jon-Paul Hale says.
Friday, August 30th 2019, 9:17AM
by Jon-Paul Hale
Life insurance policy ownership is an interesting one and often advisers don't understand how critical this is.
I'm in discussion with one of the banks on the administration of their policies. Suffice to say the issue I have discovered is one that can't be ignored. It is not only systemic, but it also speaks to the policies and training of their people and the implementation and design of their systems.
In this case, the bank in question has a rubbish application form that does not provide for joint ownership; it is the bank, the life assured or other. They then proceed to manage the policy communication with the life assured, and not the owner.
If the life assured calls/contacts the bank about the policy, the bank happily releases information on the policy. They also allow the life assured to change the contact and communication information on the policy too.
The bank admin system doesn't identify the policy owner particularly well, with the internal view often suggesting it is joint when the documentation around the policy is clearly singular.
For the commentators, the options on the application form are:
- Bank (do not complete the following details)
- Life assured (do not complete the following details)
- Other (please complete the following details)
Which means it is one only, not multiple choice – singular ownership. There are those that will suggest, of course the life assured is included you don't get a bank-owned policy with the life assured as a joint owner; you have a bank solely-owned policy.
So when the majority of policies for couples have the partner as the owner, we have an issue. The life assured or bank-owned, not so much a problem. One could argue that the problem is somewhat minor with the intended cover based on the household. But that's not the point.
If this were a bank account, then the bank would be very clear on the administration, the other party does not have access unless authorised or it is a joint account.
Which is to say, there is potential for this to be mishandled quite significantly. Not only is the bank communicating with the wrong person, how many situations have resulted where the cover was changed, reduced, cancelled, or lapsed through non-payment, where the policy owner was not aware?
I'm a little less concerned about the ownership issue with a claim, as their system does highlight the need for the real policy owner to be involved.
How can the bank be sure that it has administered the policy as it should concerning the policy owner?
Which leads to the harm aspect, as I mentioned this is less of an issue if constrained to the household. If it isn't, as in separation, or there has been a situation of business cover, then it is more problematic.
And the harm?
- For the policy owner; loss of protection or access to a claim if the cover was cancelled or lapsed without their knowledge.
- For the life assured, a little more challenging, as not being a joint or self-owned policy, there are issues about control of their own coverage.
- Have they lost cover that they intended to retain, that an ex-spouse has cancelled?
- Were they under the impression that it was joint ownership when in fact it wasn’t?
Which also raises other privacy and contractual issues.
Long story short, even the people in the bank who are supposed to know this stuff have a poor understanding of the issue until I draw the parallel to a bank account. So why does one of our banks have such a poor understanding of this?
It's contract law 101 – the basics at a level that is a day-one financial service discussion.
I expect we are going to see many examples of fundamental stuff that isn't done right in the next little while, but this one is a doozy.
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