A husband was left ‘devastated’ after his wife’s life insurer knocked £23,000 off its payout when she died – and all because of an honest mistake that meant she underpaid her policy by £253, or just £1.98 a month.
Major life insurer AIG only paid out the £23,000 after This is Money intervened, so the problem serves as a cautionary tale for policyholders to check their details carefully.
Maggie Smith, a professional chef, died in September 2023 of motor neurone disease aged 57.
Her husband Daniel Smith, an electrical engineer, had been her carer for four years.
Mix-up: It’s not clear how the wrong birthday was inputted, but it had huge financial ramifications
Eleven years previous, she had spoken to an independent financial adviser who had sold her a life insurance policy with Aegis, which was later sold to Aviva and then ended up with AIG.
The sum insured was £95,000 – meaning upon her death AIG was meant to pay that figure to her husband.
In exchange, Maggie paid premiums of £11.67 a month, which she did faithfully for 11 years.
But after her death AIG noticed a problem. Maggie’s birthday was 16 June 1965, but the one recorded on her life insurance policy was 16 June 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 the error was Maggie’s fault. Her husband says it’s extremely unlikely she would have made a mistake about her own birthday – especially as this information was originally taken down with a pen and paper by the IFA that sold her the policy.
Sadly the original record of the policy has vanished, and the IFA left the industry to run a nail bar, so it is impossible to pin down the source of the error.
But regardless of who made the mistake, serious consequences were soon faced.
AIG said that Maggie should have been paying £1.98 extra 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 out £72,121.19 instead of £95,000, a reduction of £22,878.81.
That came as a shock to Daniel, and caused him considerable upset. The point of the £95,000 payout was to fund his wife’s share of the mortgage in the case of her death, and the missing £23,000 was a major shortfall.
AIG’s rationale was that it was only paying the amount it was meant to had Maggie’s birthday been correct in the first place, and that the onus was on her to check her details were right.
Daniel offered to pay AIG the missing £253, or even £2,500, if it would pay him the full £95,000, but the life insurer refused.
With nowhere else to turn, Daniel approached This is Money to raise awareness of the issue and prevent others suffering in the way he had.
A simple oversight when taking out insurance had led to a severe payment shortfall, and at a very sad time.
Daniel wanted This is Money readers to be aware of the importance of double-checking all the information on their life insurance deals is correct.
Daniel said: ‘I should be grateful if you would remind your readers of the tragic consequences that can arise when a mistake – not necessarily that of the policyholder – is made, and lies undiscovered until a claim is made.’
AIG has a change of heart…
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 short of the original £95,000.
But in light of how the issue had affected Daniel, AIG agreed to pay him the full amount.
Daniel said: ‘I cannot express my appreciation of your help in achieving such a fantastic outcome. Thank you hardly seems sufficient.’
An AIG spokesman said: ‘We’re pleased we’ve been able to resolve the matter for Mr Smith and we 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 upsetting when we have to tell family members we can’t pay the full amount.
‘This only ever happens when the information we seek at claims stage reveals facts that would have changed how we insure the customer.’
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