A husband was left “devastated” after his wife’s life insurer took £23,000 out of his payout when she died – all because of an honest mistake which meant she paid £253 less towards her policy – or just £1 .98 per month.
Major life insurer AIG only paid out the £23,000 after This is Money intervened, so the issue serves as a warning to policyholders to check their details carefully.
Maggie Smith, professional chef, died in September 2023 due to motor neurone disease at age 57.
Her husband, Daniel Smith, an electrical engineer, had been her carer for four years.
Confusion: It’s unclear how the wrong birthday was entered, but it had huge financial ramifications
Eleven years earlier, he had spoken to an independent financial adviser who had sold him a life insurance policy with Aegis, which was then sold to Aviva and then ended up with AIG.
The sum insured was £95,000, meaning that after her death AIG had to pay that amount to her husband.
In return, Maggie paid bonuses of £11.67 a month, which she did faithfully for 11 years.
But after his death, AIG noticed a problem. Maggie’s birthday was June 16, 1965, but the one listed on her life insurance policy was June 16, 1967.
No one knows who made the honest mistake, perhaps one of the three life insurers involved with the policy or the original IFA that sold it.
There is no evidence that the mistake was Maggie’s fault. Her husband says it is highly unlikely that she would have made a mistake about her own birthday, especially as this information was originally written down with pencil and paper by the IFA that sold her the policy.
Unfortunately, the original record of the policy has disappeared and the IFA has left the industry to run a nail bar, so it is impossible to pinpoint the source of the error.
But regardless of who made the mistake, serious consequences were soon faced.
AIG said Maggie should have paid an extra £1.98 a month if her birthday had been recorded correctly – £13.65 instead of £11.67. Over the life of her policy, that added up to a shortfall of £253.
But that small underpayment meant AIG paid £72,121.19 instead of £95,000, a reduction of £22,878.81.
This came as a shock to Daniel and caused him considerable discomfort. The purpose of the £95,000 payment was to fund his wife’s share of the mortgage in the event of her death, and the missing £23,000 represented a significant shortfall.
AIG’s reasoning was that it was only paying the amount it would have to pay if Maggie’s birthday was correct in the first place, and that the onus was on it to verify that her details were correct.
Daniel offered to pay AIG the missing £253, or even £2,500, if it paid him the full £95,000, but the life insurer refused.
With nowhere else to turn, Daniel reached out to This is Money to raise awareness of the issue and prevent others from suffering like him.
A simple oversight when taking out insurance had caused a serious payment shortfall and at a very sad time.
Daniel wanted This is Money readers to be aware of the importance of verifying that all information about their life insurance offers is correct.
Daniel said: “I would appreciate it if you would remind your readers of the tragic consequences that can arise when an error is made, not necessarily by the insured, and is not discovered until a claim is made.”
AIG has changed its mind…
After This is Money raised the issue with AIG and asked the life insurer to reopen the case, it admitted it had made a mistake.
AIG said it should have paid £81,219.78, still below the original £95,000.
But in light of how the problem had affected Daniel, AIG agreed to pay him the full amount.
Daniel said: ‘I can’t express my gratitude for your help in achieving such a fantastic result. Thank you doesn’t seem enough.
An AIG spokesperson said: “We are pleased to have been able to resolve Mr Smith’s matter and again offer our condolences to Maggie’s husband at this difficult time.”
‘We pay 99 per cent of life insurance claims, so it’s always annoying to have to tell relatives that we can’t pay the full amount.
“This only occurs when the information we seek at the claims stage reveals facts that would have changed the way we insure the client.”
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