A complainant who sought a refund for a loan repayment policy after saying she was misled into purchasing the insurance has won her dispute following an Australian Financial Complaints Authority (AFCA) determination.

The insured purchased the policy while arranging a home loan in late 2014. The policy was sold by her bank, which acted as a representative of IAG. 

The policyholder says she was unaware that the policy was optional and was told by the representative that it would provide “complete coverage” of the mortgage if she could not pay it for certain reasons. 

She argues that the wording of the policy, entitled “Essential Cover Loan Repayment Insurance”, was misleading and suggested that the policy had been mandatory. 

IAG says the policy was sold appropriately, highlighting that the complainant signed documents that confirmed that the policy was optional. 

The insurer notes that its agent had confirmed, as per its checklist, that they provided the policyholder with relevant information at the time of the policy’s inception. 

IAG says it was “comfortable” that the policy was sold correctly, as it had “rarely, if at all”, received complaints about mis-sold policies from the bank branch. 

However, AFCA highlights that the insurer’s agent declared on the checklist that the policy was incepted on November 21 2014, more than three weeks before the policy was actually signed. It says this created doubt about the accuracy of the checklist as an appropriate record of the sales process. 

AFCA also notes the contract had been pre-filled with details by the representative and says it was unclear what conversations were had between the two parties before the policy was signed because the insurer failed to provide file notes relating to the sale.

The ruling says the insurer’s use of the word “essential” had been misleading to the complainant and suggested that the policy was not optional.

It says that based on the available information, the insurer was shown to have failed to disclose that the policy was optional and that it was sold in an “inappropriate and unfair manner”.

“The complainant’s main contention is that she was not aware the policy was optional,” AFCA said.

“I am not satisfied the insurer has provided sufficient information to show the complainant was aware the policy was optional.

“Further, the use of the word ‘essential’ implies the opposite of optional and I am satisfied is mis-leading in the circumstances of this complaint.”

AFCA required IAG to refund the insured the complete sum of the policy premium she had paid and any interest that had been incurred.

The complainant also sought a refund on all charges associated with the account and a payment for the time value of money, but AFCA denied this.

Click here for the ruling.