Personal Finance: How to cover all possible get-out clauses

Just because it's your word against that of a salesman, the regulator will not always side with big insurers, reports Rachel Fixsen

Losing your wife is one of the most terrible experiences that can happen to someone. Being left to bring up two small children on your own makes things harder. But imagine then finding out you might lose the family home because your wife's life was not insured as you had always thought.

This is exactly what happened to David Lenane, a 25-year-old, self-employed electrician. His wife, Anne, died in January. At least both he and his wife had life insurance designed to pay off the mortgage if either of them died, Mr Lenane thought. The couple had taken out various life policies with Refuge Assurance through one of their door- to-door salesmen.

But, to his horror, in February Mr Lenane found out that his wife's insurance would only pay out around pounds 11,000 - nowhere near enough to pay off the pounds 50,000 owed to Woolwich Building Society on the couple's three- bedroom home in Hemel Hempstead.

Money is tight. Since his wife's death, Mr Lenane says he has been unable to work regularly because of the demands of looking after the children and fitting in with school hours. "I'm on income support and for every week I'm off work, I use pounds 100-pounds 150 of my savings," he says.

He complained to the insurance company, which has now been taken over by United Friendly. On close inspection, the various insurance documents held by Mr Lenane did show that the life insurance part of the endowment policy taken out to repay the mortgage sum borrowed was - very unusually - only a single life policy to pay out if he died. Mrs Lenane did have two other life insurance policies with the same provider, but they only paid out a total of pounds 10,984.

"We both believed we had adequate life cover to pay off the house," says Mr Lenane. He freely admits neither he nor his wife were financial experts, and says they simply believed what the Refuge salesmen told them about the cover they were buying.

United Friendly says the Lenanes' application for a joint life policy was turned down due to Mrs Lenane's ill health. It also says it has documents signed by Mr Lenane which confirm that he agreed to take out a single life cover.

But Mr Lenane disputes this, saying he has no knowledge of any application being turned down. And although his wife's health was not particularly good at the time the insurance was taken out, she was not suffering from anything which appeared to be life-threatening, he says.

The complaint seems likely to be taken to the PIA (Personal Investment Authority) Ombudsman - the industry's watchdog - if United Friendly cannot settle the matter with Mr Lenane. The company indicated this week that it did not accept Mr Lenane's version of events and is not therefore prepared to settle.

What happens when it's just your word against that of an insurance company or financial services provider? Are you really expected to have read and understood all the small print of a life insurance policy you buy? Can you afford to rely on verbal information given by the salesman?

"We don't rule in favour of the company just because they say `A'," says Tony Holland, the PIA Ombudsman. "A case depends on many things, including what other evidence the person making the complaint has and whether there was a full fact find conducted by the salesperson," he says.

Mr Holland says it is too early for him to comment on the Lenane case. But he says in general, insurance documents can be very unclear and hard for many people to understand.

Documentation in a disputed claim may show that a customer agreed to a certain condition of an insurance policy. But this does not automatically mean the Ombudsman will rule in the company's favour, he says.

"If it's a health point, then the customer must disclose it ... on the other hand if it's a small complex point - for instance whether a policy is joint or single life - this is often a red herring," says Mr Holland.

Any couple with children taking out a mortgage would usually be advised to buy joint life cover to the level of the mortgage. United Friendly says it often recommends joint life policies in these cases to provide financial protection for the children.

But, all too often, people who believe they have joint life policies in fact turn out only to be covered for a single life, Mr Holland says. If this only comes to light when a spouse has died, an emotional crisis becomes compounded by a financial disaster.

We apologise for the fact that this week's Money Makeover has had to be postponed. If you would like to take part in one yourself, please write to Andrew Verity, Free Financial Makeover, The Independent, One Canada Square, Canary Wharf, London, E14 5DL. You must be prepared for your name and picture to appear in these pages.

points to remember

When dealing with insurance, remember:

Using an insurance broker or independent financial adviser could help you avoid buying inappropriate insurance cover.

Make sure any insurer you deal with is a member of the Association of British Insurers. The ABI has a code of conduct which ensures claims are dealt with promptly and fairly.

Buy from insurers which belong to the insurance ombudsman scheme (or PIA ombudsman scheme for life insurance)

In your application for insurance, make sure you are as truthful as possible. Even if not specifically asked, play safe and mention anything which you consider relevant to the matter. Failing to disclose a minor detail could jeopardise any claim.

Bite the bullet and read insurance documents through. Ask for clarification on anything you don't understand. Or ask an insurance broker or financial adviser to read them for you.

If a claim is refused, complain to the insurance company. If you are still not satisfied, take your grievance to the relevant ombudsman. If the insurance provider does not belong to the ombudsman scheme, the matter may have to be resolved in court. Consult a solicitor.

Insurance Ombudsman:

017- 928 7600

Association of British Insurers: 0171-600 3333