Mis-selling Life Insurance

The recent (February 21, 2012) High Court decision in Tan Jing Leong v Allianz Life Insurance Malaysia Bhd ([2012] 7 MLJ 179) sounds a warning to insurance companies in respect of their duty to provide full disclosure when signing up policy holders to an insurance product.

The case concerned an investment-linked life insurance policy. Such insurance products typically provide life insurance cover to the policy holder, while at the same time giving some return from a part of the premium which is invested in unit trusts for the policy holder. The policy holder therefore stands to obtain an investment gain on his or her premiums while at the same time enjoying life insurance cover for the duration of the policy.

Gains from the investment over time can usually be appropriated toward premiums payable in future years, and so policy holders are often attracted by the prospect that if the investment element of the policy does well, the initial premium can turn out to be a one-time payment that is sufficient to cover future premiums payable throughout the subsequent years of the policy.

Facts
An insurance agent for insurer Allianz sold an investment-linked life insurance policy to the plaintiff. The agent was also a long-term friend of the policy holder. The plaintiff was aware that 45% of the premium paid would be allocated to investments. However, the agent had allegedly misrepresented to the plaintiff that, based on the past performance of the policy concerned, the returns from the investment portion would be enough to pay the balance premiums for the duration of the policy. The plaintiff consequently bought the policy in the belief that the initial premium would be a one-time payment.

When the plaintiff later discovered that the investment portion was insufficient to meet future premiums, he sought to avoid the policy and succeeded. The policy was found to have dwindled to approximately 10% of its original value.

Decision
In its ruling the court held that the agent had:

•positively represented that the gains from 45% of the initial premium that had been attributed to investments would be enough to pay future premiums; and
•failed to disclose that 55% of the premium paid was consumed as the cost for life insurance cover.
The court stressed that the agent had been a friend of the policy holder for about three decades and had previously sold him several policies while an agent for another insurance company. The agent had also apparently convinced the plaintiff to surrender one of these earlier policies in order to place funds into the Allianz policy.

Comment
The case draws into sharp focus the care, responsibility and professionalism expected of insurance agents, especially when selling insurance products to long-term friends. It also demonstrates that insurance agents who move to another insurer must be very careful when they approach their former customers to persuade them to buy new policies, especially if they recommend that an old policy be abandoned in favour of a new one.