Will smoking affect our life insurance payout?
Q: My husband and I have joint life insurance for payment on first death only. We have had this policy since 1989. It is index-linked, so we have paid extra on it every year, and the payout amount has also increased.
The problem is that I have only just noticed that it says on the original policy (which has been filed away since we started it) that we are both non-smokers, when in fact my husband has always smoked.
I've never smoked, but at the time we took out the policy I can't recall saying my husband was a non-smoker – and we've never tried to hide the fact that he smokes. He has always stated on forms, if asked, that he's a smoker.
I'm worried now in case the insurer says we have deceived it. Should we notify our insurer and, if so, what should I say?
Peter Chadborn is a director and co-founder of independent financial adviser CBK
A: This is a difficult situation, in which there are several possible outcomes. Either your husband dies of a smoking-related condition, the insurer investigates and declines the claim on grounds on non-disclosure, or your husband dies of a smoking-related condition, it investigates and takes a sympathetic stance, making a partial payment, adjusted to reflect his smoker status.
The third outcome is that your husband dies of a non-smoking-related condition, the insurer makes no additional enquiries, and the claim is paid.
Of course if you die first, then as a proven non-smoker, there will be no issue and it will pay out as normal.
Such uncertainty is highly undesirable, so your insurer should be informed. All companies take different stances with scenarios such as this.
Some may allow the policy to remain in force with an adjusted premium, some will only do so after further evidence of your state of health, and some will cancel the policy outright.
This will cause further issues, such as whether your current state of health will permit acceptance for replacement insurance and the fact that you are 21 years older than when you started the policy, so you will pay higher premiums.
I suggest you seek independent guidance because advisers will be more familiar with the policies of different insurers and the stance they may take. The adviser will also be able to assess the overall suitability and cost-effectiveness of your policy.
Ultimately, you should inform your insurer to be certain of an unequivocal payout. If you feel you have been misrepresented by your adviser, you'll be able to complain to the Financial Ombudsman Service.
For more advice on life insurance head to IFA.net.
Generally thought of as being interchangeable with life assurance, but isn’t. Life insurance insures you for a specific period of time, at a premium fixed by your age, health and the amount the life is insured for. If you die while the policy is in force, the insurance company pays the claim. However, if you survive to the end of the term or cease paying the premiums, the policy is finished and has no remaining value whatsoever as it only has any value if you have a claim. For this reason, life insurance is much cheaper than life assurance (also called whole of life).
A financial adviser who is not tied to any financial services company (such as a bank or insurance company) and is authorised by the Financial Services Authority (FSA). They can advise on financial products to suit your circumstances. All IFAs have to give consumers the choice of paying by fees or commission and have to explain which would best suit the customer in that particular instance. Also, if commission is paid either by the client or the financial service provider recommended by the IFA, the IFA must disclose what that commission is.
If you’ve have a complaint about a financial service product you have bought but the company you bought it from refuses to resolve your problem after eight weeks, the Ombudsman can help. The Ombudsman will investigate and resolve the matter. The Ombudsman is independent and its service is free to consumers. The Ombudsman may find in the company’s favour but consumers don’t have accept its decision and are always free to go to court instead. But if they do accept an Ombudsman’s decision, it is binding both on them and on the business.