Are you safe buying cover off the shelf?

Protecting yourself financially in the event of the death of a loved one, or your own poor health, is still a taboo subject for many.

Protecting yourself financially in the event of the death of a loved one, or your own poor health, is still a taboo subject for many.

Most people simply hope it won't happen to them. Even those aware of the financial implications of life-changing events are uncertain how to safeguard their income.

In many cases, milestones such as buying a home, starting a family, retirement or divorce tend to break down this reluctance to face reality. And thanks to the rise of cheap financial products sold through supermarkets such as Tesco and high-street chains such as Boots, more people have begun to buy cover literally off the shelf.

But are these products really a springboard for a better-insured nation? Concern is growing that people who buy life insurance and critical illness cover (CIC) direct in this way are being left in the dark and getting poor value for money.

In the worst case, buying the wrong type of CIC (a form of insurance that provides a lump sum on diagnosis of a serious illness) could lead to financial disaster. Policyholders have no redress should they discover too late that the insurance company won't pay out because of an exclusion clause that they had failed to notice when taking out the policy.

Or, in the case of life insurance, surviving partners could end up with much less than the original sum insured because the policy wasn't written into trust and the payout thus incurs inheritance tax.

At the root of the problem is the absence of professional financial advice at the time these off-the-shelf policies are bought. Life insurance and CIC are complicated products, but it's all too easy to pick up a leaflet in a supermarket or a bank, or click on a website, and buy them without being fully aware of what you're getting.

New regulations state that consumers buying these products must clearly understand that they are doing so without any accompanying advice.

But the consumer body Which? believes the law doesn't go far enough. It wants all financial-protection products to be sold with advice. Only in this way do consumers have the right to make a complaint if they buy an unsuitable product.

"The [danger is that] people go to supermarkets and think they're buying a product that contains some sort of advice," says Mike Naylor, spokesman for Which?. "We are not sure how clear the supermarkets are making it [to the consumer] that the protection product is being sold without advice. There's quite a risk of not buying the right product."

Some consumers realise they have bought a policy without advice only when they get sent the documents a week later, he says.

However, supermarkets claim that their leaflets, websites and staff always state clearly when cover is being sold direct or, in certain cases, with advice.

You can buy basic life cover and CIC without advice online at Tesco (in a tie-up with Norwich Union). When prompted, the supermarket's web pages detail all illnesses covered by its CIC policy, as well as those conditions excluded.

Yet log on to both Boots and Sainsbury's websites and you'll find only simple life cover on sale direct. CIC must be bought as an add-on, with advice (over the telephone) from qualified specialist staff at each retailer's tie-in insurers.

In none of the above cases is the consumer being mis-sold any product. However, due to the potential for customer confusion, the Financial Services Authority, the City regulator, now employs members of its special financial promotions team to scrutinise retailers' websites to make sure there is no element of unauthorised "advice" creeping in.

The Financial Ombudsman Service, which investigates consumer complaints, is aware of the issues surrounding these direct sales but has yet to report any individual complaint.

But Lifesearch, a leading insurance broker, argues that not enough is being done to protect consumers. Like Which?, it says all protection products should be sold with advice. Of course, Lifesearch derives its profits from commission made on recommending financial products, and its opposition to "off-the-shelf" selling makes commercial sense. But its concern that consumers are not getting value for money is based on the proven benefits of professional financial advice.

"If you're buying life cover or CIC direct, how do you know you're getting a good deal unless you know all the different products in the market?" asks spokesman Kevin Carr. "If you buy from Sainsbury's, you're offered a product from only one insurance company [Legal & General]. Is that really a good deal when there are so many other rival products?"

Mr Carr also points out that CIC doesn't pay out for the two biggest causes of long-term absence from work - stress and back pain - but these are covered by income protection, a different financial product.

"If income protection is more suited to you than CIC because of your job, how will you know if you haven't had financial advice?"

Similarly, a financial adviser can help you write a life policy into trust at little or no extra cost, so avoiding inheritance tax. This could save thousands of pounds in the event of the death of the person insured.