Bank failed to give clear warning about risks of letting policy lapse

Insurance policies,
Tipene had a life insurance policy with his bank for more than 15 years. In 2017, he was diagnosed with cancer and underwent surgery. A year later, he applied to increase the benefits on the policy. After seeking updated information about his health, the bank deferred its decision, citing his history of cancer, and said it would reconsider his application after his next follow-up with his doctor, due in a few months.
July 2020

He later contacted the bank to say he would not be able to make his next premium payment because of financial difficulties. He reached an agreement with the bank to make a double payment the following month. However, on the day this payment was due, he contacted the bank to say he was still in financial difficulty. The bank said it could not help any further and the policy would lapse if he didn’t pay the premium within 14 days. He asked what would happen after that if he wanted to keep his insurance. The bank replied that he could reinstate the policy simply by paying the overdue premiums within 14 days of the policy expiry date, and that after that he could apply to reinstate the policy within 90 days of it lapsing and the bank would just need to go through a few documents and ask a few questions of him. The policy lapsed and the bank wrote to advise him he could apply to reinstate the policy within 90 days, subject to an underwriter assessing a declaration by him of his health during the previous 12 months.

Tipene contacted the bank before the 90-day expiry period ended to reinstate his policy. He completed the declaration over the phone, noting that he had undergone surgery for cancer more than a year ago and had been given the all-clear at a recent follow-up appointment. The underwriter declined the request to reinstate the policy because of Tipene’s history of cancer.

Our investigation

We considered whether the bank had properly advised Tipene about the consequences of letting his policy lapse. A bank should clearly warn a customer it may decline a reinstatement request if the customer’s health has changed since first taking out the policy. The bank knew about Tipene’s history of cancer and, in our view, failed to give him that clear warning.


The bank acknowledged it could have given clearer advice and offered to reinstate Tipene’s policy on its original terms. Tipene accepted the offer.

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