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A missing dividend option (life)

In 2003, Mrs. C. purchased two whole life insurance policies – one for each of her children, A. and D. Both policies were purchased at the same time and had face values of $300,000 each. The policies were to have the same dividend options – bonus additions – which allowed for the face and cash values of the policies to grow if the insurer declared dividends. As is usual, at the time the policies were purchased, Mrs. C.’s life insurance agent showed her several written sales illustrations demonstrating how the various dividend options, although not guaranteed, would perform under various assumptions.

Mrs. C.’s intent was to select the same dividend option for each of the two policies based on the sales illustration she chose with the assistance of her agent. Mrs. C. did not speak or read English well and relied on her agent to fill in the application forms, including the selected dividend option.

Both policies were issued and annual statements were delivered to Mrs. C. After two years, she noticed that the type of bonus addition on her son’s policy was quite different from those for her daughter’s policy. She suspected that something was amiss and promptly called her agent to inquire about the discrepancy. She was advised to await her next annual statements.

When the third annual statements continued to show discrepancies between the two policies, Mrs. C. instructed her agent to look into the matter. His inquiries revealed that the dividend options were different for A. and D.’s policies. It appeared that A.’s policy was issued in accordance with the dividend option selected by Mrs. C. and indicated on A.’s application. In contrast, the dividend option section in D.’s application was left blank and hence the insurer applied the “default” dividend option as permitted by the contract.

The agent pointed out the mistake to the insurer, who agreed to correct the dividend option in D’s policy, but only on a “go forward basis”. Shortly thereafter Mrs. C.’s daughter contacted OLHI with a request that we assist in securing an adjustment to the dividend option from the date D.’s policy was issued.

Our Dispute Resolution Officer (DRO) quickly ascertained the facts, reviewed the necessary documents, and recommended that a letter be written to the insurer’s Ombudsman. He advised her to emphasize that the two policies were clearly to be identical, that an innocent error by the agent caused the problem, and that no steps were taken by the insurer to notify Mrs. C. that the policy issued for D. was issued with a dividend option that differed from that of the sales illustration.

This letter led to a detailed investigation by the insurance company. The insurer’s Ombudsman agreed with our DRO that the policy ought to have been issued in conformity with the sales illustration that accompanied the applications, failing which any discrepancy between the illustration and the policy issued for the son, D., should have been brought to Mrs. C.’s attention.

The insurer agreed that the most appropriate remedy was to correct the dividend option retroactively to the start of the policy, with resulting increases to the face and cash values of D.’s policy. The insurer also advised that the investigation of this case led to modifications to the insurer’s procedures to ensure that any similar cases in the future would be more promptly identified and resolved.


Disclaimer: Names, places and facts have been modified in order to protect the privacy of the parties involved. This case study is for illustration purposes only. Each complaint OLHI reviews contains different facts and contract wording may vary. As a result, the application of the principles expressed here may lead to different results in different cases.