AMP Financial Planning must pay more than $450,000 to the children of a man who died in an accident after his life insurance was allowed to lapse.

In June 2018 an AMP adviser recommended the 38-year-old man, identified only as Mr P in the Australian Financial Complaints Authority (AFCA) ruling, roll over his existing superannuation and replace his life and total and permanent disability (TPD) cover within a new fund.

But the insurer declined the new insurance application due to Mr P’s existing medical conditions and he died in an accident on April 29 2019 without insurance. The AFCA ruling provides no further details of the incident.

Mr P’s ex-wife and mother to his two children sought the benefit of the cover as if it had remained in force, arguing the adviser should have recommended retaining the existing policies.

AMP says Mr P decided to proceed with the rollover knowing his existing insurances would be cancelled, and that insurance was not a priority for him.

But AFCA found in favour of the complainant, saying the adviser should have made the implications clearer.

“The late Mr P was 38 years old at the time he was declined for life and TPD cover,” AFCA says.

“There was a very real risk that the late Mr P may have had difficulty obtaining insurance in the future and if he did, he may have faced significant premium loadings relating to pre-existing conditions.

“In allowing the existing insurance to lapse without warning of these risks and without undertaking further investigations into the late Mr P’s health to properly assess these risks, the adviser failed to warn the late Mr P of the significance of his insurance being allowed to lapse.

“The panel acknowledges that retaining the insurance was not the key priority for the late Mr P, but is satisfied this is only because he was not aware of the implications.”

AFCA says compensation of $457,749.12 – the benefit minus the cost of premiums – must be paid into a trust established for the benefit of the late Mr P’s two children, for them to access when they turn 18.

Click here for the full ruling.