Regulation of term life insurance

What could be worse than to have a loved one die. No amount of life insurance will replace a loved one in your heart but it can help with the financial difficulties that may also be caused by a early death.

Life insurance is not compulsory in the UK although many people think it is essential. It is estimated that about half the UK population are covered in some way by life insurance. It is certainly true to say that many families and dependents have benefited because a term life policy had been taken out and was there when it was needed.

With insurance we purchase a policy documents which is basically a promise to pay if a certain event occurs. We are not all experts on insurance and so we need laws and regulations to protect us when we purchase insurance. That protection is now offered through the Financial Services and Markets Act 2000 and the work done by the Financial Services Authority (FSA), the Financial Ombudsman Service (FOS) and the Financial Services Compensation Scheme (FSCS). All of these three organisations work together to help give you peace of mind.

Firstly the FSA have to authorise those who provide financial services and either arrange, sell or provide insurance policies. The names of the firms who have been authorised by the FSA appear on the FSA register which is accessible at the FSA’s web site www.fsa.gov.uk. Firms or individuals who behave badly can be struck off the register and can be open to criminal prosecution.

Secondly the FSA produce a set of rules and code of practice which firms must adhere to. The rules deal with how businesses are run whilst the codes of practice deal with how businesses treat their customers. One of the benefits for customers is that insurance intermediaries have to provide their customers with an Initial Disclosure Document. That explains the size of the life insurance market the intermediary deals with, the level of service they provide and provides details about fees.

Even with the FSA in charge problems and disagreements can occur. If you are a private individual or a small business then you may be able to take your complaint to the Financial Ombudsman’s Service (FOS). The FOS provides you with an independent service which is funded by the financial markets that have to pay a fee out of the turnover they receive. If you have a complaint then you must first use the complaint system offered by the firm against who you have the complaint. If after having gone through that system, you are still not satisfied then you may be able to take the matter up with the FOS.

Finally there is the Financial Services Compensation Scheme which is there to provide a financial safety net in the event that an authorised firm is unable to meet its financial commitments. Details of who is protected by the FSCS and the level of protection provided is advised in the initial disclosure document and on the FSCS web site www.fscs.org.uk