Phoenix Life Limited · DRN-6238606

The complaint Mr R complains that Phoenix Life Limited has given him incorrect and misleading information about the amount his life assurance portfolio would pay out in the event of a claim. What happened In 1996 following advice from a third-party adviser, Mr R converted a term assurance policy into a whole of life policy, and the insurer has since become Phoenix Life (for ease I’ll just be referring to Phoenix Life and not the previous name of the insurance company). Since March 2017 Mr R has had three policies which are collectively referred to as a portfolio and he is sent annual statements that report on the three policies together as one. In 2022 Mr R’s annual statement said that as of 11 March 2022, his monthly premium was £185.53, the death benefit was £71,042, and there were 7,181.05 units held, with a value of £23,460.50. Towards the end of 2023, Mr R’s adviser wrote to Phoenix Life for updated policy information. On 15 December 2023 Phoenix Life replied and said there was no death benefit attached, and the only amount payable on death would be the fund value, which was £26,451.74 as of 14 December 2023. Mr R complained, as he believed the fund value would be payable on death, as well as the life assurance of £71,042. After initially denying any wrongdoing and following further correspondence between the parties, in 2025 Phoenix Life admitted their letter of 15 December 2023 was wrong and offered Mr R a total of £620 compensation for the delays and poor communication. On 27 January 2025 they sent confirmation of the benefits available under the policy and wrote to Mr R’s advisers saying: “We can confirm that the amount payable in the event of a death claim, would be the greater of: a) The Guaranteed Minimum Death Benefit applicable to the policies at the time. Or b) The value of units allocated to the policies, calculated at the bid price applying at the time.” Mr R remained unhappy, because he had understood from the policy schedule, terms of the plan, information he was given by his adviser in 1996 and the 2022 statement, that on his death the claim value would be both the death benefit and investment value. He asked our service to investigate his complaint and an investigator considered it. She found that the information given in January 2025 was not inconsistent with the information given in the terms and concluded that the policy only pays the greater of the two amounts, not both. She found the £620 offered by Phoenix Life was fair for the confusion and inconvenience caused. Mr R asked for the complaint to be considered by an ombudsman, in summary because: • He had agreed to pay more than the minimum amount of premiums needed, because in 1996 the adviser wrote to him and said that by paying for the standard cover, it would build up some value, which would depend on fund performance. He said Mr R “will have a return on your contract and not purely a matter of premiums going up to provide a death sum assured… In the event that you should wish to change to the lower premium factor and therefore little if any returns other than death then let me know”

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• In a letter of 16 August 2024 Phoenix Life said that the policy “has a life cover sum assured of £71,042 and a policy value of £24,153.16 which is not guaranteed”. Mr R had understood the inclusion of the word “and” to mean both would be payable. • He disagreed with the investigator’s interpretation of the policy documents. • The policy value was nearing £30,000 and he questioned why it was beneficial to pay in more than the minimum necessary premiums, if that amount would simply be kept by Phoenix Life on death and not paid out. As the investigator wasn’t persuaded to change her mind, the complaint had been passed to me for a final decision. 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. Having done so, I agree with the conclusion reached by the investigator for broadly the same reasons. Before I go into my findings regarding Phoenix Life, I want to clarify that I am not considering the actions of Mr R’s adviser in this decision. They are independent of Phoenix Life and so I couldn’t hold Phoenix Life responsible for the way the adviser described the policy to Mr R in 1996, or at any later point. I’ve begun by considering the 1996 documents issued by Phoenix Life, including the illustration, policy schedule and terms and conditions, as these make up the contractual obligations agreed by Mr R and Phoenix Life. Generally, these documents should be read together to fully understand the benefits. I consider the relevant parts of each are as follows: • The illustration dated 26 February 1996 said: “The following tables show what you might get back if you cash in your plan early. Remember that the surrender value may appear low because the main aim of Optimum Protection is to provide a high level of protection.” • The illustration dated 26 March 1996 said: “Cover: £71,042 or the bid value of the units if greater” • The Acceptance Advice dated 26 March 1996 said: “Benefits: Benefit £71042 payable in the event of death” • The terms and conditions, at Section 4 – Sum Assured Payment Clauses said, at clause 4: “The actual sum payable on the relevant event will be the greater of: (a) The amount of Guaranteed Life Assurance applicable to the Policy at the time but subject to any lien applying to the Policy – see Special Conditions and (b) A sum being the value of the units deemed to have been allocated to the Policy, calculated at the bid prices applying on the Payment Date.” Bold is my emphasis. In my view, together these set out that primarily the aim of the policy is to provide a sum assured payable on death of £71,042. There’s a secondary benefit of a potential surrender value that would be available if the policy holder decided to end the policy, prior to the life assured’s death. The documents do not promise to pay both the sum assured and the surrender value on death, it’s one or the other. It would only pay the surrender value on a death claim, if it is more than the sum assured. I’m satisfied that the wording of clause 4 is clear, fair and not misleading. The inclusion of the phrase “greater of” and the word “and” between the two options, is indicative that this is a

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list of two options, just one of which would be payable in the event of a claim. If I were to interpret this in the way that Mr R has asked, then the wording would be redundant because the sum assured plus the surrender value together would always be greater than the sum assured alone. So, there would be no need to set it out in this way and instead the terms would just promise to pay both amounts when a claim is made – rather than the greater of those two amounts. I don’t agree that the use of the word “and” is any different to the use of the word “or”, which Phoenix Life used in their letter of 27 January 2025 to Mr R’s adviser. The overall meaning isn’t fundamentally changed – both set out that just one of the two amounts would be paid, not both. This is also in line with the wording from the 26 March 1996 illustration. I’ve gone on to consider the later information Mr R was given about the policy (bold is my emphasis): • In his annual statement in 2022, Phoenix Life said: "Death benefit £71,042 Description We will pay this benefit when the life assured dies. The value shown is the basic life cover. If when a claim is made, your investment holding (including any final bonus) is higher, we will pay the higher amount. Once a claim has been made the portfolio and any benefits will end" To me, that sets out that if the surrender value is more than the sum assured, then the surrender value would be paid instead of the sum assured – not as well as. • Phoenix Life has already admitted that their letter of 15 December 2023 was wrong, as was their letter of 22 April 2024, both of which said the amount payable on death would just be the surrender value. • Mr R has said he thinks Phoenix Life’s letter of 16 August 2024 set out the amount payable on death in a way that reinforced his understanding. In my view, I believe the wording was setting out the two main benefits of the policy – it didn’t say both were payable on death. The sentence Mr R refers to needs to be read with the rest of the paragraph it appears in for full context. It said: “l am sorry that we have not referred to all the information available in our initial investigations to respond to your complaint or confirm the correct values of your policy. l can confirm that a review letter was issued on 17 March 2024, as of 14 January 2023 your Optimum Protection Plan had a life cover sum assured of £71,042 and a policy value of £24,153.16 which is not guaranteed.” That information was correct – the policy has got two values, one sum assured and one surrender value. The letter doesn’t say both are payable on death. Overall, I’m satisfied the information Phoenix Life has given to Mr R is clear, fair and not misleading, and upon a claim on death, the amount they will pay is either the sum assured, or the surrender value of the policy, not both. I can see Mr R has questioned the purpose of the surrender value, and why he would pay more into the policy than the minimum needed, if the surrender value wasn’t also payable on his death, on top of the basic sum assured. Generally, there are several reasons for the surrender value. It provides the obvious benefit of being able to surrender the policy and receive a return depending on the investment performance, if the policy is no longer wanted prior to death. But the main purpose of the investment element of a reviewable whole of life

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policy is that it allows the policy holder to pay lower premiums than they otherwise would need to, for a non-reviewable policy with an equivalent sum assured, and I’ll explain further. The premiums are invested in funds, and Phoenix Life will regularly make deductions from the investment funds for policy charges, and life cover costs. Those life cover costs are variable and at Phoenix Life’s discretion. As the life assured gets older, the life cover costs will increase and may often be more than the premiums being paid in. So, the higher the premiums paid in the earlier years, the more the investment will have built up, and the longer it can sustain the life cover costs, especially later in life when they are higher. The purpose of the reviews on the policy is for Phoenix Life to ensure that the premiums and investment are large enough to continue to withstand the deductions of the life cover costs. At a review, if Phoenix Life finds the investment is not large enough, then they would ask Mr R to increase his premiums or reduce the sum assured. If Mr R had only been paying the minimum premiums possible from the start, which I understand were £47.92, then he may have had to increase them more dramatically at a review, in order to maintain the sum assured. That increase may have been to more than the current amount he is paying. Whereas by paying more from the start, there is a lower likelihood of dramatic changes being required later. The surrender value also allows the policy to become paid up, which is set out in the terms under ‘Section 8 – Conditions of Policy’, at clause 3 ‘Discontinuance of Premium’. Essentially if Mr R were to stop paying premiums, but not surrender the plan, then the policy would become paid up. The charges and costs would continue to be taken, and the sum assured would remain, until the investment value ran out, at which point the policy would end and it would no longer provide any benefits. For a non-reviewable policy, Phoenix Life would need to set the premiums at the start in a way that took account of the increasing costs of cover over the likely life of the policy. That would normally be more expensive at the start than a reviewable policy. It also wouldn’t have an investment element and so if cancelled prior to death, then nothing would be returned to the policy holder. If the policy has a surrender value of less than the sum assured at the time a claim is made, then Phoenix Life would only pay the sum assured. The money to pay the claim may in part be funded by the value of the investments – they might use the proceeds from that to pay part of the sum assured and take the difference from a separate pot of money. But the exact source of the money used to pay the claim would be up to Phoenix Life. Lastly, I’ve considered the amount of compensation Phoenix Life has offered, £620, for the delays they caused and incorrect information they gave Mr R and his adviser. Overall, I’m satisfied that amount is fair, taking into account the amount of time Mr R was dealing with this issue and the confusion Phoenix Life caused. I understand this was paid over multiple cheques and I’m unsure whether Mr R has cashed all of them and they may be out of date if not already cashed. So, any of the £620 that hasn’t already been paid, should be paid by Phoenix Life. If Mr R has already received the whole amount, then there would be nothing further for Phoenix Life to pay. My final decision I uphold the complaint in part. My decision is that Phoenix Life Limited should pay Mr R £620 in total.

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Under the rules of the Financial Ombudsman Service, I’m required to ask Mr R to accept or reject my decision before 16 April 2026. Katie Haywood Ombudsman

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