My parents have been paying into a life insurance policy for over twenty years, but received a letter last week saying that they were no longer covered. The letter was filled with jargon, but the bottom line was that their policy had reached 'burnout', hence no further cover. When I called the insurer to query the letter I was told that 'burnout' is when a fund runs out of money, and that their supposedly 'managed' fund has indeed ran out of money. The thing that concerns me is that my parents didn't receive any information at any stage informing them that the fund was ever in trouble, and that they were never informed of any risks when they originally took out the insurance. Can they simply lose all their money as a result of this one letter? When I sought advice from the financial advisor at my bank, and from local independent financial advisors, I drew a blank - none of them had ever heard of the term 'burnout'! Has anyone else, or has anyone experienced anything similar themselves? (The insurer is a well known company)

This doesn't sound right. I have never heard that term used either.Who is the Insurer? The one that was struggling was Equitable Life but they are still solvent. Others will be able to advise better than me but I think you may need to involve the insurance Ombudsman or a similar body.

Without meaning to pry,was this a with profits policy or a life cover policy.What were your parents expectations about what the policy would pay out? How much approx have they paid into the policy?

Please keep us informed.

Thank you, Backfoot for your reply. The policy was a life cover policy, which was to insure both my parents for their lifetimes. They were told that they could borrow against the money, should they need to, but my parents never did this as they didn't want their policy to lose any value as a result. The insurance was for life cover of £40,000 if that's any help, and they have paid in approx £10,000.
If we were to launch a complaint against the insurers, but they effectively reject our claims, will going to the Ombudsman make any difference? If the insurer doesn't feel that we have a case, won't they be certain that the ombudsman's decision will be in their favour?
The insurer is Abbey Life, owned by Lloyds TSB, and was highly regarded at the time my parents took the policy out. The letter they received and the contract they signed make interesting reading - there is no mention of burnout in the contract or terms of contract, nor of any risks to their money. The advisor at Lloyds double checked this for them and advised them to pursue a complaint against Abbey Life. As parents of young children at the time, my parents were adamant that they wanted to be insured by a known name and with a no-risk policy to prevent any financial loss in the event of their death(s). Not that either seem to have done them any favours at this stage! I think at the moment they understandably very angry by the letter received and the possibility of losing all their money, but are also very anxious that they are litte fish taking on sharks, so to speak.

Wendy,

Was out last night so sorry for the delay. I have to admit this is not a strong area for me.

However,placing myself in your position I would look at http://www.financial-ombudsman.org.uk/.The financial Ombudsman covers this area and their website looks very comperehensive.I have checked that Abbey Life are governed by the FSA so this comes within their jurisdiction.There is advice about first approaching the company,then if not satisfied they have complaints forms and procedures for you to follow.You will have to take a look and see whether you want to embark on this.Given the outline you have given something looks wrong and I would certainly want to explore it further if it was me.

As a layman here,I am happy to stand corrected but it sounds like your parents bought a policy that would pay out on death of one of the partners to a value of £40,000.That may be the sole purpose of the policy without any investment return.i.e no 'with profits'.What i can't understand is the amount of premium paid in relation to the benefits.You could probably get such cover now at around £10.00 per month for a person aged 50.Life Assurance costs have reduced dramatically since I took my first policy out.

Neither do I understand after paying for so long that the Insurer can just say you are no longer covered is tenable.For these reasons,it is worth exploring to start to understand exactly what this product was and whether it was missold to your parents and whether there is any protection under those regulations.

I hope one of the 'true experts' can offer some more professional advice on this one for your and others benefit.

Like Backfoot, who has, in fact, given you some splendid advice, I am not strong on Life Assurance.

But it does sound very dodgy to me, too.

Pursue a complaint, do it all in writing, so that it is well-evidenced, and be persistent. If we can help you with it, we will.

Good luck. Let us know how you get on. You can tell your parents you have an internet community behind you!!

Cat

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If you lodge a complaint with the company & you aren't happy with the out come, you are entitles to take it up with the ombudsman who could side with either you or the company. They are an independant watchdog.

Unfortunatly the ombudsman will tell you to log a complaint with the company first & the company must keep a copy of the complaint incase you take it the the ombudsman.

Hope this helps