From $100,000 to $20,000 of trauma cover

In 2008, Neville, aged 65, met with a financial adviser. During the course of their conversation, the adviser noted that Neville had a life insurance policy with cover of $100,000 and a trauma policy with cover of $75,000. The adviser said that Neville could save on his insurance premiums by reducing his life cover to $12,000, and increasing his trauma cover to $100,000. This appeared to suit Neville because he had no dependants, lived on his own, and had paid off his mortgage. The $12,000 of life cover would pay his funeral costs if he were to pass away. It made sense to increase his trauma cover which would pay out in the event Neville suffered a major health event or accident.

Neville applied to his current insurer to increase the trauma cover and reduce the life cover. The insurer then wrote to Neville to outline the changes. The insurer’s letter confirmed Neville’s new sum insured for life cover was $12,000, and stated that Neville now had a trauma standalone sum insured of $100,000.

In 2020, Neville, who had always been in great health, was shocked to be diagnosed with a terminal illness. The illness would cause him to deteriorate quickly, and there were no treatments available to extend his life.

Neville claimed under his trauma policy thinking he would receive $100,000. However, he only received $20,000. It was at this point that Neville discovered he had been moved to a new type of trauma policy where, although he had a sum insured of $100,000, the maximum amount that could be paid for any one trauma event was $20,000. To receive the full benefit of the $100,000 sum insured, a person would need to experience and survive five trauma events.

Neville felt he had been given poor advice and complained to his adviser. The complaint was unable to be resolved through the adviser’s internal complaints process and, with a friend’s help, Neville complained to FSCL.



Neville’s friend said that the adviser had failed to meet the requirements of section 33 of the Financial Advisers Act 2008 (FAA). Section 33 says that when giving financial advice, a financial adviser must exercise the ‘care, diligence, and skill that a reasonable financial adviser would exercise in the same circumstances’. Neville complained that the adviser had failed to compare and explain the benefits and risks of moving to the new trauma policy. In particular, Neville said the adviser had failed to clearly outline to him in a way he could understand, how the policy worked: that to obtain the full benefit of the $100,000 of trauma cover, he’d have to experience and survive five separate trauma events.

The adviser said that he clearly explained the difference between the existing and new trauma policies to Neville. The adviser also produced a copy of the insurer’s quote that he said he’d been through with Neville before the cover was placed. The quote showed a trauma sum insured of $100,000 and then underneath said “allows for 5 claims of $20,000”. The adviser said Neville was made aware, and understood, how the new trauma policy would respond in the event of a claim.



We asked the adviser to provide their full file and report on the complaint. At the same time, Neville and his friend met with the insurer to discuss reaching an agreement in relation to his claim. A confidential agreement between Neville and the insurer was reached, which went most of the way to resolving his complaint against the adviser.



To bring the complaint against his adviser to a final resolution, Neville wanted the adviser’s firm to commit to ensuring other clients did not experience what he had. Neville suggested the adviser’s firm could undergo an independent audit of their advice processes. The firm considered this was an excellent suggestion and presented a great opportunity for them to see whether there were any improvements they could make to their processes. This resolved Neville’s complaint.


Insights for consumers participants

Although FSCL never had to complete a full investigation of this complaint, there were some initial indications that the financial adviser may have breached section 33 of the FAA. There were no file notes to evidence what the adviser had explained to Neville, and no real statement of advice. This meant there was no evidence to support the adviser’s view that he had explained to Neville, and that Neville understood, the differences between the existing and the new trauma policies.

In addition, it appeared that the new trauma policy was likely never suitable for Neville. It was highly unlikely that any person, particularly a 65-year-old, would experience and survive five trauma events and have the benefit of the full $100,000 sum insured. Even the insurer’s general information sheet about the policy showed a young man with his toddler child, suggesting the policy was more suitable for younger people who conceivably could experience and survive five trauma events. This should have been a red flag to the adviser about the suitability of this product for Neville.

It’s also important to note that when Neville received the advice in 2018, it was under the existing financial advice regime (under the FAA). If the advice had been provided under the new financial advice regime from 15 March 2021, there would likely have been a breach of section 431L of the Financial Markets Conduct Act 2013 which mirrors section 33 of the FAA. There would likely also have been a breach of standard 3 (the requirement to give suitable advice) and standard 4 (the requirement to ensure clients understand the advice) of the Code of Professional Conduct for Financial Advice Services (the Code), which also comes into force on 15 March 2021.