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This is an odd one and I hope someone could explain the law for me (ideally with a link to the actual law). This case happened in the UK (England to be specific, should that make a difference).

About two weeks ago, a colleague of mine told me that while getting their mortgage application sorted through a mortgage broker, the mortgage broker offered some insurances to protect him and his family for the duration of the mortgage (life insurance and income protection), as he seemingly was working together with some insurance companies to offer that as part of the mortgage application. My colleague was hesitant to sign any deal on the spot, as he wanted to review all of the policies / quotes before signing anything, as insurances were never covered before in any of the appointments. He then felt pressured by the broker who seemingly was using typical sales techniques ("only I can offer these quotes", etc.) to which he then just replied that he will not make a decision on that during their meeting and insisted on review the policies / quotes, which makes sense to me.

They agreed to have a follow-up meeting to discuss this, but the mortgage broker never called again. Much to their surprise, they later received a letter from one of the policies who confirmed they have set up the direct debit for their insurance and that payment would be taken once the mortgage payments would start. They had, however, since looked for alternative policies and decided to go with a different policy and so basically had now two life insurances, one of which they didn't need and which was arranged by their mortgage broker without explicit consent (email, telephone, signature, etc.). In-fact, they wanted to inform the mortgage broker in the follow-up meeting that they had gone with a different insurance company but figured that since the mortgage broker never showed up again they do not need to inform him then (they did not assume the mortgage broker would take out insurance in their name without getting permission beforehand to do so).

They were able to get out of that by talking to the insurance company but were quite upset with their mortgage broker (understandably). However, here is the part that I do not understand, I have not studied law but I would bet that there must be laws in place (in the UK (England)) that prohibits third parties from taking out insurance on someone else's behalf without their explicit consent. Assuming these laws exist (and here is where my curiosity comes in), what are the consequences for mortgage broker? Slap on the wrist or potential bigger punishments (if pursued that is)?

In addition to my own curiosity, I am actually about to embark on the same journey (mortgage application) and I just want to avoid this whole situation in the first place so I would like to know what my mortgage broker is and isn't allowed to do in my name. I would assume they would know the consequences of taking out insurance that I have not instructed them to do but I would feel better / more informed if I knew what the law actually says on this.

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First, apply Hanlon’s Razor

Never attribute to malice that which can be adequately explained by stupidity

It’s quite likely that the broker’s recollection of the meeting is very different from your friend’s - whenever 2 people witness an event there are a minimum of 3 versions of that event - one for each person and what actually happened. Very soon there will be more as each person’s memory of the event changes with time.

It’s possible, even likely, that even though your friend verbally refused the insurance, they signed something accepting it. When the broker looked at that, even if they remembered the refusal, it may convince them that your friend changed their mind.

Agency

As a matter of law, a life insurance agent is an agent of the insurer, whereas a mortgage broker is your friend’s agent. So, if the broker did something wrong vis-a-vis the life insurance, that’s a matter between them and the insurer, from your friend’s position, the broker is the insurer.

No harm, no foul

Your friend has suffered no damage so they have no basis for a lawsuit. The contract has been cancelled and they are not out of pocket. Indeed, they received a benefit: if they has died while both policies were active their beneficiaries would have gotten both payouts.

Licensing

Life insurance agents have legally enforceable ethical standards. While it’s not clear that these were breached, your friend can report the behaviour to the regulator who may or may not investigate.

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  • Given the level of miss-selling that has gone on in the UK financial industry in recent years, this to me definitely feels like an open and shut case of miss-selling and potentially fraudulent action - there is no requirement to take out life insurance for a mortgage in the UK, it shouldn't even have been on the cards, so the broker was just trying to earn an extra commission - the way in which this happened feels extremely familiar, as it looks exactly like how a typical fraudulent miss-sale is put through - the OP should complain to the financial ombudsman loudly.
    – user28517
    Apr 19, 2021 at 23:21
  • The fact that this is probably a fraudulent miss-sale is probably why the insurance company backed down quickly - they knew they were in a bad position, and remedied the position as soon as possible to mitigate any fall out from any complaint.
    – user28517
    Apr 19, 2021 at 23:22
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    (I worked in the insurance brokerage and financial services world for several years early last decade, hence my thoughts above - this is precisely why we get tonnes of training not to confuse these decisions, because a miss-sale is a huge huge negative thing.)
    – user28517
    Apr 19, 2021 at 23:23
  • @Dale M: "It’s possible, even likely, that even though your friend verbally refused the insurance, they signed something accepting it." ... Yes, that what he thought as well, but that is not the case. As mentioned above, he refused to sign anything on the spot, hence the follow-up meeting (which never took place). Since then, no signing of documents took so there was no chance to sign any insurance by accident. Correct me if I am wrong, but if he did not sign anything, then the policy should have been able to be taken out?!
    – tom
    Apr 20, 2021 at 6:21
  • @Moo Thanks for your thoughts, that's what I thought as well (insurance company not wanting to risk a complaint to the ombudsman). Well, I hope in my case it will be less problematic but this doesn't really help me to be less suspicious of salespeople in general ...
    – tom
    Apr 20, 2021 at 6:25

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