Lack of a payment reminder disables a policy: Insurers are not obliged to tell customers that premiums are due

JOHNNY COHEN has learnt the hard way that there is no legal obligation on an insurance company to send a reminder to pay your premiums.

Mr Cohen had a policy that provided a pension and disability cover. His insurance company, Crown Financial Management, did not send him a reminder to pay the premium, lapsed the policy, and two years later he still has no disability cover. If he had been insured by a company with a more comprehensive system of sending out reminders, he would not be in this predicament.

In June 1984, Mr Cohen, a chartered accountant, took out an Accountant's Disability and Retirement Benefits Plan underwritten by Crown.

According to the policy brochure: 'Each year on the policy anniversary, the amount of cover may be increased by up to the same percentage as the percentage increase in the Retail Price Index over the previous 12 months or by 10 per cent whichever is the greater WITHOUT FURTHER EVIDENCE OF HEALTH.'

Every year, Mr Cohen took full advantage of the option to increase his cover. And every year, the procedure was the same.

Usually in May, Crown wrote to Mr Cohen advising him that the renewal premium was due.

He wrote to his broker, telling him to notify Crown of his right to the optional increase and to ask the insurer for amended details of premiums.

Crown provided the figures and application forms for the increase. Mr Cohen completed the forms and paid the premiums. For years, this procedure worked like clockwork.

Mr Cohen said: 'In May 1989, the usual sequence began. Crown wrote to me, I wrote to the broker, and the broker wrote to Crown asking for details of the optional increase.

'The broker did not get a response from Crown. In fact, neither myself nor the broker heard anything further until I discovered in December 1990 that nothing had been done.

'I alerted my brokers, who were then advised over the telephone by Crown that the company had lapsed the policy and made it paid up.

'I was astounded. I had not received even so much as a reminder to pay the premium.'

In a letter to Mr Cohen's broker, Crown admitted: 'We agree that our failure to follow up our renewal notice . . . was bad administration.'

Crown offered to reinstate the policy. But disability cover would only be available if he had a clean bill of health.

Mr Cohen was not amused. Crown had admitted that it had got him in this mess, and now he had to have a medical to maintain the cover - which he had taken out on the basis that the cover automatically increased without further evidence of good health.

As a result of the medical check, Crown refused to reinstate the disability benefit.

We spoke to Crown and asked about the earlier admission of bad administration. A spokesman said: 'That letter should not have been written. That's all I can say.'

He said there were no originals or other copies on Crown's file of Mr Cohen's and the broker's initial requests to increase his cover.

He admitted that there is no copy of a follow-up reminder on Mr Cohen's file. He could not explain why a follow-up letter was not sent. Nevertheless, Crown is happy about its reminder procedure.

The spokesman said: 'Whilst Crown has no legal or contractual obligation to advise policyholders in respect of non-payment of contributions, this follow-up procedure was never discontinued.

'All I can say is that there is no problem on the pension benefit. However, as regards the disability benefit, based on the evidence we have received, the reinstatement has been declined.'

Would Mr Cohen be in this mess if his policy had been with another company?

Royal Life sends a veritable deluge of reminders if you do not pay your premium. A spokesman said: 'You get a premium reminder after 21 days, 35 days, 65 days, 95 days and 325 days.'

Allied Dunbar jogs your memory after 14 days, again after 28 days, and if you have still not paid it will pass your file to the person who sold you the policy, who will then issue more reminders over a three- month period.

Commercial Union sends a first reminder after 20 days and another one 30 days later.

(Photograph omitted)