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Beneficiaries of underwritten life policies receive more than R13 billion in 2016

15 May 2017 Hennie de Villiers, ASISA

Life insurance companies honoured 99.3% of claims against fully underwritten life policies in 2016 to a record value of R13.1 billion, delivering much-needed financial support to beneficiaries following the loss of a loved one.

Fully underwritten life policies are only issued if the policyholder has completed a full underwriting process, which may involve a comprehensive assessment of the life insured’s medical history.

The 2016 annual death claim benefit statistics for fully underwritten policies released this week by the Association for Savings and Investment South Africa reveal that life insurers honoured 35 347 death benefit claims by families (35 983 in 2015).

Hennie de Villiers, deputy chair of the ASISA Life and Risk Board Committee, observes that this means that life insurers paid an average of 97 claims every day last year.

By comparison, life insurers declined just 261 claims (389 in 2015) to a value of R332 million in the entire year.

“Contrary to what many believe, these statistics show that life insurers have a solid track record of paying benefits and delivering on their long-term promises to policyholders. In fact, the percentage of underwritten death benefit claims paid has consistently lingered around the 99% mark since the statistics were first collected five years ago.”

De Villiers adds that South African life insurers remain well positioned to honour long-term promises to policyholders. The long-term insurance industry continues to be well capitalised with assets exceeding liabilities by more than four times the legal reserve buffer.

Reasons death claim benefits were declined

Claims against fully underwritten life policies will always be honoured by insurers, provided the claim is not fraudulent, and the policyholder did not:

• Commit suicide within the first two years of taking out the policy;
• Withhold important information from the insurer when applying for the policy; or
• Die as a result of an excluded condition.

De Villiers states that the primary reason supplied by life insurers for rejecting claims is non-disclosure, which involves an act of dishonesty on the part of policyholders.

Non-disclosure

De Villiers observes that non-disclosure accounted for 55.3% or just over half of death benefit claims declined last year (52.3% in 2015).

Non-disclosure refers to the failure of policyholders to disclose information about a medical or lifestyle condition in an attempt to secure lower premiums or to obtain cover without exclusions.

He states that it is somewhat encouraging to see that incidents of non-disclosure have continued to decrease since 2012 when it accounted for 70.34% of the 352 claims rejected.

“The reality, however, is that too many policyholders continue to take the risk of withholding information when applying for life cover at the expense of their beneficiaries,” he says.

He notes that by comparison the number of claims declined due to an underwriting exclusion on the life policies is low.

“This shows that attempting to hide any medical conditions when applying for your life cover will place the value of your policy at far greater risk than any potential exclusions you may face,” he explains.

He provides the following guidelines for policyholders to ensure that they have met the requirements for full disclosure:

• Provide detailed and honest answers when completing the questionnaire on your medical history and lifestyle.
• Provide detailed information on your state of health and medical history as well as that of your immediate family.
• Be honest about your smoking and drinking habits.
• Disclose dangerous recreational activities such as skydiving and deep sea diving. Also, if your occupation involves risky activities you need to disclose these. Examples include mining, flying aircraft, and working with weapons.

“While providing this information may seem onerous, undertaking the full underwriting process and being honest and thorough offers far greater certainty that your life policy will pay should the unexpected happen,” he says.

Underwriting exclusions

De Villiers notes that by contrast to the number of claims declined for non-disclosure, only 9.2% of claims declined last year were as a result of the policyholder dying from a condition that had been specifically excluded by their life insurance policy (24.2% in 2015).

“This would signal that the majority of policyholders died as a result of factors unrelated to an excluded health condition on their life policy last year. This highlights the importance of being upfront with your life insurer rather than jeopardising your policy pay-out,” he says.

A life company can apply an underwriting exclusion when, for example, the policyholder suffers from a specific illness such as diabetes, but is healthy otherwise. The life insurer may then exclude this condition from the life cover.

This means that if the policyholder is killed in an accident or dies of a cause unrelated to diabetes, the life policy will pay. If the death is related to the excluded condition, the death benefit will not pay. Exclusions such as these allow insurers to provide life cover to people at affordable rates.

Suicide

De Villiers notes with concern that incidents of claims declined due to suicide nearly doubled to 62 claims (23.7%) last year from just 32 claims (8.3%) in 2015.

All life insurers apply a two-year exclusion period to suicide in order to prevent someone from taking out life cover with the intention of committing suicide shortly afterwards.

This means that if a policyholder commits suicide within the first two years of taking out life cover, no death benefit will be payable to the beneficiaries.

Fraud

Death benefit claims declined due to criminal intent by either the policyholder or the beneficiary decreased slightly to 7.3% of claims in 2016 (8.8% of claims in 2015).

Claims fraud usually involves the submission of fraudulent documentation and/or syndicate activity aimed at getting the life company to pay a claim to someone not entitled to the benefit.

Driving under the influence

The remaining 4.6% of claims declined last year were rejected for a variety of less common reasons. De Villiers says it is important to make policyholders aware that some of these claims were declined on the basis that the insured’s death was caused by driving while under the influence of alcohol.

“In at least two cases last year, claims were declined where the policyholder was involved in a fatal accident while driving over the legal alcohol limit,” he says.

He notes though that life insurers usually take many factors into account before rejecting a claim since there has to be a direct link between the intoxication and the accident that caused the death.

“It is important to be aware that when driving under the influence of alcohol you are not only placing yourself and others at risk of injury and death, but you are also jeopardising the future financial welfare of your loved ones.”

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