Life Insurance and the Law. A layman s introduction.
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Life Insurance and the Law: A Layman's Guide
Summary
This article provides an accessible introduction to the regulatory and legal aspects of purchasing life insurance in the UK, with a focus on online purchases.Keywords
life, insurance, law, FSA, compliance, adviser, broker, executionArticle Body
In the UK, life insurance is entirely voluntary. Around 40% of the working population is covered, either through personal policies or employer arrangements.
Eligibility and Residency
To purchase life insurance from a UK-based company, you must be a UK resident. Although not explicitly required by law, UK regulations and tax policies make it unfeasible for UK insurers to sell policies to non-residents. If you move abroad after buying a policy, it may become invalid. Short out-of-country assignments should be reported to your insurer to maintain coverage.
Regulations and Financial Stability
UK insurance firms must adhere to corporate laws tailored specifically for them, ensuring that they can manage risks and maintain sufficient financial reserves to cover claims.
Data Protection
The Data Protection Act 1998 governs how UK businesses store and use data. Life insurance companies collect extensive personal information, including age, health, and lifestyle. A key provision mandates that businesses must disclose to customers if their data will be used for marketing and allow them to opt-out. Reputable websites offering life insurance will provide privacy statements explaining their data handling.
Financial Services and Markets Act 2000
This crucial legislation affects the promotion of financial services, including life insurance. Overseen by the Financial Services Authority (FSA), it aims to protect consumers by ensuring clear and professional advice tailored to individual needs. It also offers avenues for compensation if inadequate advice is received.
Role of the FSA
The FSA regulates financial advisors to ensure they are competent, supervised, and act in clients' best interests. Advisors must provide complete and accurate product information before and after purchase. All financial advisors in the UK need FSA authorization.
Execution Only Transactions
The Act differentiates between advice-based purchases and "Execution Only" transactions, where consumers select investments independently. Here, advisors are only responsible for processing the purchase efficiently and bear no liability for product suitability.
Online Purchases
Many life insurance websites operate on an Execution Only basis, but they offer extensive information to guide informed choices. Websites must clearly outline their service basis in their Terms of Business, which customers must acknowledge.
Complaints and Compensation
Terms of Business include a complaints procedure. Complaints must be submitted in writing to the business’s Compliance Officer, who investigates and responds. If a complaint is upheld and a financial loss has occurred, a settlement is required. Unresolved cases can be referred to the independent Financial Ombudsman, whose decisions are typically binding.
Financial Protection
The Financial Services Compensation Scheme protects customers if a regulated financial organization becomes insolvent and cannot meet its obligations.
Conclusion
This overview highlights essential legal aspects for the layman. For comprehensive details on the regulation of life insurance companies, brokers, or financial advisers, visit the Financial Services Authority's website at www.fsa.gov.uk.
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