Pru refuses to honour quotes

Tens of thousands of people who thought they had signed up for life insurance and critical illness cover with Prudential were left in the lurch this week.

The Pru has sparked an outcry after deciding not to honour quotes it issued as long ago as two months ago. After being swamped with applications for its "best-buy" life in surance with critical illness cover, it has withdrawn these deals and brought in new higher rates.

Controversially, the Pru has decided to apply the new rates retrospectively to thousands of applications in the pipeline where people had signed up on the basis of earlier quotes.

As a result, those people who have applied but haven't yet received an acceptance letter now face having to pay substantially more for their cover - typically 20%-30%, according to one estimate.

Someone who has suffered a change in health during the past few weeks might now have a problem getting cover.

Life insurance with critical illness included is mostly sold to homebuyers when they take out a mortgage. These policies pay out a lump sum if you suffer a specified serious illness such as cancer or a heart attack.

Sales of such policies have soared over the past year or so, even though advances in medicine have pushed up the cost of cover.

And some companies have phased out so-called guaranteed policies, where the amount you pay is fixed for the life of the policy, in favour of "reviewable" policies where the insurer will increase premiums every few years.

In recent months the Pru's guaranteed policy rates have been so competitive that "every independent financial adviser in the country" was recommending the company to their clients, says Kevin Carr at specialist life insurance broker LifeSearch.

Then on Monday the Pru announced it had "consumed the capacity to write business at current rates," adding that "all business which we have not yet accepted will be subject to the new premium terms". What's more, it has pulled out of guaranteed policies completely. It also says that "new" - that is, less favourable - critical illness definitions will apply.

While the Pru says it is under no obligation to honour quotes it has issued where it has not accepted the risk, Mr Carr claims the company's actions amount to "moving the goalposts".

Jason King at fellow broker Life Policies Direct says the insurer has behaved "scandalously".

The change of heart that will prove costly

Mark Hughes is "not very happy at all" after finding out he is going to have to pay substantially more for his life insurance and critical illness cover following Prudential's controversial move this week.

Mr Hughes, 30, is one of thousands of people affected by the Pru's decision not to honour quotes it has issued during the past few weeks.

He now has to go through the whole application process again and looks likely to have to fork out more than £130 a year extra for his cover.

Recently married Mr Hughes, of Shrewsbury, Shropshire, signed up for the Pru's policy five weeks ago after it was recommended to him by specialist broker Life Policies Direct. He was quoted £39.12 a month for his cover.

Mr Hughes had filled in and signed the relevant forms, and had assumed he was covered. So he had a nasty shock this week when he received a letter from the broker saying the Pru had pulled the product.

"They [the Pru] should honour the application forms they have got in. I can't think of any other business where you buy something and then five weeks later they tell you that you're not going to have it," he says.

Mr Hughes, a managing director of a petrol forecourt company, now faces having to shell out more money. The best quote he has been able to obtain this week is £50.65 a month from Norwich Union - £11.53 more than the Pru's original quote. Over 25 years - the term of the policy - that adds up to £3,459.