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Couple wins 'frozen premium' life insurance dispute

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A couple who ended up paying more for their life policies because AMP Financial Planning failed to sign them up for a “frozen premium” plan as discussed has won their complaint against the advisory firm.

The Australian Financial Complaints Authority (AFCA) says the couple would not have suffered losses in their superannuation accounts had the AMP adviser acted accordingly to what had been communicated and mapped out in the statement of advice (SOA).

As a result the premiums that were deducted from the couple’s individual superannuation accounts increased every year, pegged to the consumer price index (CPI) and did not stay “frozen”.

“The frozen premium plan was never put into effect,” the AFCA ruling says. “The insured benefits offered each year did not ‘reduce by a proportional amount’.

“They increased by large amounts each year, partly because of the increasing benefit, and partly because of the stepped premium making each dollar of cover more expensive each year.”

The adviser, who is no longer with the firm, never put the SOA plan into effect.

AFCA says the adviser did not provide the couple with forms allowing them to apply for cover with the “premium freeze”.

“Instead, she provided them with applications for insurance which was bound to become much more expensive over time,” AFCA says. “At that point, there was no reasonable basis for her to be confident that the goal of superannuation growth could be achieved.”

AFCA says the financial firm has not given a reason for the failure to implement the “frozen premium” plan.

The firm was also asked to provide submissions on whether the increased premiums meant that the strategy no longer balanced the need to insurance and superannuation growth.

AFCA says it does not accept the firm’s explanation that the SOA had made clear that “projections were only projections, not guarantees, and that the SOA also pointed out that insurance premiums can have an effect of superannuation balances”.

“The SOA assumes that the goal of superannuation growth could be achieved,” AFCA says. “If, in the implementation of the strategy in the SOA, it becomes clear that one of the key goals of the strategy cannot be met, that undermines the SOA itself.

“An expert adviser cannot expect their client to notice the problem without prompting, much less understand it, from boilerplate warnings in the SOA they were previously given.”

AFCA ordered AMP to pay $24,138.05 into a super fund nominated by the husband and $9796.31 to one nominated by his wife. The amounts represent what they would have had in their super accounts had their life premiums been “frozen” as stated in the SOA.

AMP must also pay $7671 to the husband, the loss he suffered for his trauma policy after the adviser signed him up for one with loading and CPI-linked increases.

Click here for the ruling.