Thousands of people who paid millions to cover their future funeral costs have been left out of pocket after an insurer suddenly cancelled their policies.
The move by firm Maiden Life was branded ‘immoral’ as customers were told their cover would be terminated at the end of this month.
Experts believe policy-holders, many of whom are elderly and on low incomes, were under the impression they were paying into a funeral plan.
In fact, the premium was covering customers for just one month at a time and could also be cancelled with 30 days’ notice by both parties, which Maiden Life has now done following a review.
Some had paid into the scheme for decades, expecting a payment of up to £10,000 for their families when they died.
For many, their contributions have significantly surpassed any payout they might have received upon their death.
Ann Sloan, 81, said she had paid thousands in premiums over 16 years ‘for nothing’.
‘Maybe I lived too long,’ she told BBC Radio 4’s Money Box programme.
Experts believe policy-holders, many of whom are elderly and on low incomes, were under the impression they were paying into a funeral plan (file image)
‘If I would have died sooner my family would have got £6,000 and that would have been enough to bury me.
‘I’ve got two disabled sons and a daughter who has had two heart attacks so where are they going to get the money to bury me?’
She added that if she had known it was not a funeral plan, she ‘would have never taken out that policy’.
The Maiden Life policies were closed to new customers in 2009 but around 2,000 are still active.
They were sold through an insurance broker, CMutual, and credit unions in Scotland.
The latter are popular providers of financial services for those who struggle to access mainstream banking – for example, if they have a poor credit record.
‘It’s deeply immoral and repugnant leaving thousands of vulnerable, low-income elderly people high and dry like this,’ said Paul Sweeney, an MSP in the Scottish Parliament.
Maiden Life is not regulated by the Financial Conduct Authority, meaning it can’t force the firm to continue with the policies, or sanction a compensation scheme.
Its rules only cover pre-payment plans, which allow upfront payments for funeral costs so families avoid footing the bill.
James Daley, of consumer group Fairer Finance, said the regulator should investigate.
‘Customers clearly didn’t understand the premium was covering you for one month at a time. If people understood that then surely they wouldn’t have bought it?’ he said.
Doug McAllister, Labour MP for West Dunbartonshire, said: ‘It’s going to leave some of the poorest in a terrible position. It’s heartbreaking.’
He added he’d written to City Minister Lucy Rigby asking for a meeting to discuss compensation.
A spokesman for the Association of British Credit Unions Limited trade body said: ‘We recognise the distress this is causing and we are working with our member credit unions to ensure they can provide the best support.’
Some credit unions are reportedly considering legal action.
An FCA spokesman said it recognised the policyholders’ ‘concern’, adding: ‘We have engaged with all firms involved and asked the credit unions to communicate clearly with their members.
‘We do not have the power to force firms to continue to offer products after they withdraw them.’
Maiden Life was contacted for comment.
