Misunderstanding benefits

Insurance review

In December 2012 Hank and Hannah called their insurance adviser, Henry, to review their life and income insurance policies. Henry proposed a change of insurer and recommended life, mortgage repayment cover and trauma policies to replace their existing cover.

Hank and Hannah considered the advice and decided to proceed with life and mortgage repayment cover through Henry. They cancelled their old policies and received their new policies in the post.

Sadly, in August 2014 Hank was diagnosed with leukaemia. Hannah emailed Henry asking how their policies would respond, so she could organise a budget while Hank was off work. Henry replied that the mortgage repayment cover policy would pay both a standard benefit plus a critical illness benefit of $15,240 (the critical illness benefit was the equivalent of 6 months’ mortgage payments).

Hank and Hannah made a claim to their insurer for the standard benefit and critical illness benefit. The insurer paid the critical illness benefit but not the standard benefit. The insurer confirmed that mortgage repayment cover is not paid for the first 6 months after a critical illness benefit is paid out.

Hank and Hannah were upset that Henry had given them incorrect advice. Hank and Hannah were sure that Henry had told them when they took out the insurance in December 2102 that the critical illness benefit of $15,240 was payable in addition to the mortgage repayment cover standard benefit, if Hank were to suffer a critical illness.

Hank and Hannah wanted Henry and their insurer to pay them the $15,240 they thought they were entitled to. Henry refused, saying he never said the critical illness benefit would be paid in addition to the mortgage repayment benefit.


The complaint

Hank and Hannah complained to FSCL that Henry made a negligent misstatement while advising them about the insurance and that this statement caused them a loss of $15,240.



We investigated the complaint and found:

  • Henry was not acting as the insurer’s agent when discussing and implementing the insurance policies and could not make representations on behalf of the insurer.
  • Henry owed a duty of care to Hank and Hannah to exercise care, diligence and skill in negotiating and implementing the mortgage repayment cover policy.
  • There was insufficient evidence to find that Henry made a negligent misstatement at the time of negotiating and implementing the insurance.
  • Henry should have explained the critical illness benefit’s effects to Hank and Hannah.
  • Henry inconvenienced Hank and Hannah in failing to explain the effects of the critical illness benefit and in giving them incorrect advice in August 2014 which had caused Hank and Hannah stress and disappointment.


We found there was insufficient evidence to conclude that Henry had made the alleged statement about the critical illness benefit when the policy was sold. We considered that Henry should have taken the time to explain the various benefits under the policy and if he had done so correctly, Hank and Hannah would have better understood the policy and the different policy benefits.

We did not consider that Henry’s failure to discuss the benefit had caused any direct financial loss, but we felt that Hank and Hannah had been inconvenienced. We recommended that Henry pay Hank and Hannah $2000 in compensation for the inconvenience caused.



Under the law, when someone is negligent and gives you incorrect advice, you must prove that you have relied upon that advice and suffered a loss. The law will try to put you in the position you would have been before the advice was given.

If you are taking advice or implementing an adviser’s recommendations, it can be useful to record in writing what your reasons were for taking out a particular insurance policy. If a specific benefit or term in the policy is important to you, then you should clarify it with your adviser and ask for written advice from the adviser explaining the benefit’s nature and effects so that, if you need to, you can rely on the written advice later.