Phoenix Life Limited · DRN-6248110

The complaint Mr and Mrs M are unhappy with the administration of their Reviewable Whole of Life (RWOL) policy held with Phoenix Life Limited (Phoenix Life). What happened The RWOL policy commenced on 1 January 1999 with an initial sum assured of £25,000 and critical illness cover at £25 per month. The policy document sets out that the cover is guaranteed until the next policy anniversary at which point the plan will be reviewed. The first review would take place before the tenth anniversary and then every 5 years until the life assured reaches the age of 70 when it becomes annual. I understand there was also the option to take out an additional policy annually to keep the sum assured in line with inflation. Mr and Mrs M received review letters over the years, they took out a number of additional policies and selected options within the review letters to either reduce the life cover and maintain the premium, or maintain the level of cover and increase the premiums they paid. A review letter was issued on 7 November 2023, this explained that the current monthly premium was not enough to support the level of cover. It provided some information and two options to Mr and Mrs M which were: - Option A – Reduce the life cover to £27,992.06 and critical illness to £52,695.67 and maintain the monthly premiums at £146.47. - Option B – Maintain the life cover of £56,545 and critical illness of £108,945 for an increased monthly premium of £15.77. Mr and Mrs M noticed errors in the letter and contacted Phoenix Life – they said they were told that there was a system error and so the review letter was incorrect, they could ignore it. They then received a letter which said that their cover had been reduced. Unhappy with this Mr and Mrs M referred a complaint to Phoenix Life, they said that they would have increased their premium to maintain the life cover. They asked Phoenix Life to act as if they had selected option B. A complaint was referred to Phoenix Life. Due to the time it was taking Phoenix Life to provide them with an answer to their complaint they referred it to this service. Phoenix Life issued their final response in August 2024. They upheld the complaint, in summary they said that there had been a system issue which had resulted in the review letter of November 2023 containing inaccuracies. And following manual calculations they had identified errors in the information they held about the amount Mr and Mrs M were paying in premiums and the cover they had prior to the November 2023 review. The correct options available to Mr and Mrs M as at November 2023 were said to be: • Option A - Reduce the life cover to £44,008.77 and critical illness cover to £83,347.44 and the monthly premium remains at £193.68. • Option B - Maintain the life cover at £63,072 and critical illness at £121,698 with an increase of the monthly premium to £302.68.

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Due to the errors Phoenix Life said: • They would keep Mr and Mrs M’s monthly premiums at £147.38, which is what they had been paying, until the system error had been resolved. With no clawback of the underpayments. • They agreed the customer service they provided was poor and so they offered £570 compensation in total. An Investigator put this offer to Mr and Mrs M and said it was a fair way to resolve things. Mr and Mrs M didn’t agree that this was a fair offer – because they were being asked to pay more per month for less cover or increase their monthly premiums by a significant amount. They asked for the increase of £15.77 per month to be honoured to maintain the level of cover. An investigator issued a second assessment, they maintained that, whilst Phoenix Life had made an error, they were unable to ask them to honour the figures quoted within the incorrect review letter of November 2023. As Mr and Mrs M remained unhappy, they asked for an ombudsman to review the complaint. They surrendered the policy. What I’ve decided – and why I’ve considered all the available evidence and arguments to decide what’s fair and reasonable in the circumstances of this complaint. Whilst I have considered everything that has been provided to this service, I don’t intend on commenting on each item. Instead, I will focus on what I have determined are the key aspects of the complaint. When considering what’s fair and reasonable in the circumstances, I need to take account of relevant law and regulations, Regulator’s rules, guidance and standards and codes of practice, and what I consider to have been good industry practice at the time. This includes the Principles for Businesses (‘PRIN’) and the Conduct of Business Sourcebook (‘COBS’). And where the evidence is incomplete, inconclusive or contradictory, I reach my conclusions on the balance of probabilities – that is, what I think is more likely than not to have happened based on the available evidence and the wider surrounding circumstances. I don’t need to establish if an error has occurred here, because Phoenix Life accept that it has. They issued an incorrect review letter in November 2023 and then discovered that there were historic errors with the sum assured and premiums that Mr and Mrs M had been paying. The figures above provided within the November 2023 review and then final response demonstrate those errors. So, the issue to determine is how Phoenix Life should put things right. Mr and Mrs M have said that they feel they have been forced to surrender the policy as it might cost Phoenix Life too much should a claim be made, and the error has likely had an impact on the surrender value they received. I think it’s helpful to explain firstly how RWOL policies generally work in practice. The premiums paid cover the cost of life cover and any charges. Anything above that is invested to build up a fund, which creates a surrender value. Generally, at the start, when the cost of life cover is lower, more of the premiums are invested. As time goes on the cost of the life cover increases as the policyholder gets older. Which means that it’s likely there will come a time when the premiums paid no longer meet the costs of the life cover and charges on their own (the tipping point of the policy). The investment fund that has been built up is then used to help pay the increasing cost of the life

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cover. So, it’s never the case that Phoenix Life would be in a position where the cost of paying a claim is covered by Phoenix Life in the way Mr and Mrs M have described. Mr and Mrs M were paying to cover the cost of the sum assured with their premiums – and if there is a shortfall then monies would be taken from the investment fund that had been built up. I have been provided with the cost of the life cover and charges annually along with the premium that Mr and Mrs M paid up to September 2024. Their policy never reached its tipping point (so they were never paying less in premiums than the cost of the life cover), and so the amount in the investment fund, which provides the surrender value, was not used to supplement the cost of the life cover. Had there been no error by Phoenix Life it’s likely Mr and Mrs M would have been paying higher premiums than they were paying for the level of cover they had. Phoenix Life have said that Mr and Mrs M should have been paying £193.68 per month before the November 2023 review had been issued. I have thought carefully about what I think Mr and Mrs M would most likely have done, had they received the correct review and options in November 2023. They would have had three options: • Surrender the policy. • Maintain the monthly premiums and reduce the sum assured. • Maintain the sum assured and increase the premiums. I don’t think Mr and Mrs M would have surrendered the policy at the time. I say that because they had been happy with the cover until these errors were identified. I think the errors caused Mr and Mrs M to lose faith in Phoenix Life which has contributed to their decision now to surrender the policy. I think it’s most likely that Mr and Mrs M would have either chosen to pay more per month to maintain the level of cover or reduced the cover and maintained the monthly premium. They had always selected one of these options at past reviews. Based on the type of policy Mr and Mrs M had, it is likely that each review following on from 2023 would have carried another increase in premium as they aged. Those increases tend to be significant to cover the increasing cost of life insurance. I appreciate how extremely frustrating it must have been for Mr and Mrs M to have received information that an error had occurred with their review. Which was compounded by Phoenix Life discovering another error, such that to maintain the level of cover they had enjoyed previously their premiums would need to increase by a significant amount more than was set out within the review. However, I’m not able to direct Phoenix Life to continue to charge Mr and Mrs M a premium which has been calculated in error. So, I wouldn’t have been able to ask Phoenix Life to have maintained the sum assured for £15.77 more per month had they not surrendered the policy. Phoenix Life agreed to keep the premiums at the lower monthly rate of £147.38 until the system error was resolved with no clawback of premiums. I think this was a fair thing for Phoenix Life to have offered to do. And they offered a total of £570 in compensation for the distress the error has caused. I have considered the surrounding circumstances and feel this amount is fair and reasonable, and it is in line with what I would have suggested had Phoenix Life not made any offer. So, I’m not asking that they increase the compensation offered.

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Putting things right In order to resolve this complaint Phoenix Life must pay Mr and Mrs M £570 compensation in total, if they have not already done so. My final decision I uphold Mr and Mrs M’s complaint about Phoenix Life Limited and direct them to pay compensation as set out above. Under the rules of the Financial Ombudsman Service, I’m required to ask Mr M and Mrs M to accept or reject my decision before 21 April 2026. Cassie Lauder Ombudsman

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