Life insurers pay almost all death claims against fully underwritten policies

20 May 2014 Peter Dempsey, ASISA
Peter Dempsey, deputy CEO of ASISA,

Peter Dempsey, deputy CEO of ASISA,

Life companies paid 98.9% of all claims made against fully underwritten life policies in 2013 to a value of R8.4 billion. Only 1.1% of death benefit claims to a value of R178.8 million were declined.

This is the second time that the Association for Savings and Investment South Africa (ASISA) has released annual consolidated death benefit claims statistics for fully underwritten life policies. Statistics were collated for the first time in 2012 with the aim of evaluating the rate at which claims are paid and declined.
In 2012 life companies paid 99% of claims to a value of R6.8 billion. Death benefit claims to a value of R213.8 million were declined.
Peter Dempsey, deputy CEO of ASISA, says the statistics show that by far the majority of death benefit claims are paid by life insurers.
"This is important since policyholders and their beneficiaries need to be able to trust that their policies will pay when a life-changing event occurs.”
Death benefit claims statistics for 2013 were submitted by the 14 long-term insurance companies that offer fully underwritten life cover. The statistics show that last year these life insurers honoured 36 199 (34 724 in 2012) death benefit claims and declined 394 (352 in 2012).
Dempsey says the increase in death benefit claims was to be expected considering the 6% increase for 2013 in the number of risk policies bought.
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. These policies will then honour claims provided the claim was not fraudulent and as long as the policyholder did not commit suicide within the first two years of taking out the policy, did not die as a result of an excluded condition and did not withhold important information from the insurer when applying for the policy.
Reasons for declining death benefit claims
Dempsey says in 2013 claims were declined for the following main reasons: non-disclosure (61.9%), suicide (24.1%), underwriting exclusions (7.8%) and fraud (4.6%).

Dempsey describes as good news the drop in non-disclosure as a reason for claims being declined. In 2012, of the total number of claims declined, 70.3% was due to non-disclosure. In 2013, the percentage was down to 61.9%. He says increasingly consumers are realising that it is not in their interest to withhold material information from insurers, as this is likely to result in policies being cancelled or claims being declined.
Non-disclosure refers to the deliberate failure of policyholders to disclose information about a medical or lifestyle condition. An example would be to not disclose participation in dangerous sports or a serious medical condition such as diabetes or cancer. Policyholders usually resort to non-disclosure in an attempt to secure lower premiums or to obtain cover without exclusions.
In order to assess risk accurately, a life insurer relies heavily on the applicant disclosing complete medical history and detailed lifestyle information likely to influence the judgment of the insurer when determining appropriate policy terms and premiums.
This is important, says Dempsey, because it allows the life insurance company to set premiums for different risk categories, thereby ensuring that every person pays the premium that is appropriate for their health and lifestyle circumstances.

Dempsey says in 2013 a slightly higher number of claims were declined due to suicide than in 2012. Of the total claims declined last year 24.1% was due to suicide, while in 2012 the percentage was 20%.
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.

Underwriting exclusions
In 7.8% of all claims declined in 2013, the death of the policyholder was caused by a condition that had been specifically excluded by the policy.
If, for example, the policyholder suffers from diabetes, but is healthy otherwise, the life insurer may 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 be paid. Exclusions such as these allow insurers to provide life cover to people at affordable rates.
Dempsey says while applicants are sometimes tempted to not disclose a medical or lifestyle condition, it is far better to pay the appropriate premium and have an exclusion added to the policy than to not disclose facts and have your beneficiaries’ claim repudiated.

Dempsey says 4.6% (3.4% in 2012) of death benefit claims declined was due to criminal intent by either the policyholder or the beneficiary. 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.
How to make sure your policy will pay
Dempsey has the following advice for policyholders wanting to make sure that their beneficiaries receive their death benefits should they die:
• Complete the questionnaires on your medical history and lifestyle yourself and make sure that you are completely honest in your answers.
• 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.
• Shop around for risk cover and compare premiums as well as terms. One company’s premiums might be higher than those offered by another, but then you may find that in return the potential of future risks has already been factored in and you are not required to inform the company of lifestyle changes.
• Make sure you nominate a beneficiary. This enables the life insurance company to pay the proceeds of your life policy directly to your beneficiary, thereby bypassing the deceased estate (although you will still have to pay estate duty on the policy proceeds).
• Remember, since the industry is very competitive there are likely to be good reasons for substantial differences in premiums.

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