Funeral policies: a warning to consumers
Conversations about death and funerals are never pleasant but certainly necessary, as we are all confronted by death at some point in our lives. We live in a diverse country where funerals have a different cultural meaning and experience, more than often at a large expense for those remaining behind. Bearing in mind the costs to bury or cremate a loved one, consumers seek insurance products that can provide cover for all the related expenses.
The Financial Sector Conduct Authority (FSCA) has on many occasions warned the public to be cautious when funeral insurance policies are bought. Many consumers have approached the Office of the FAIS Ombud for assistance when the funeral cover they had been paying for, is not providing them with the benefits they expected to receive. It is therefore important to clarify some concepts surrounding funeral cover.
The purpose of funeral insurance is to provide cover to assist with the payment of the cost of funerals. The most important feature is that funeral policies must be underwritten by a registered long-term insurance company. In terms of the Long-term Insurance Act, a company that provides financial services must either be registered as a financial services provider, or its policies must be underwritten by a registered insurer.
Why is this so important? Insurance is about risk. When a small funeral parlour has 1000 clients , it is possible that it might find itself having to cover the funeral expenses of 200 people at the same time. The challenge is that the funeral parlour might not have enough funds to meet this obligation. However, had the policies been underwritten by a registered insurer, a policyholder and beneficiaries would have been guaranteed payment of benefits in the event of a claim, owing to amongst others, the capacity of the insurer and the minimum solvency requirements. Insurers are also subjected to various laws which are enforced by the likes of the FSCA and the Prudential Authority.
Most importantly, it is illegal to conduct the business of an insurer when you are not registered or licensed to do so.
It is also important to explain the concept of insurable interest. A person will have an insurable interest in the life of another person when the death of that person would cause the surviving person a financial loss. The death of a person should not be seen as an opportunity to be unduly enriched.
Such an example of schemes has been published by the Ombud for Long Term Insurance , where the operator would visit hospitals and obtain the details of patients. This person would then insures the lives either in his own name and for his own benefit, or in the name of the life assured, but for the benefit of the operator or his nominee.
The purpose of insurance is to assist with the funeral costs that you are obliged to pay, and not for profit making. Insurable interest has to exist at the time that the policy is bought.
There are number of important factors which consumers should consider prior to taking out any funeral insurance:
• Ask for proof that the person or entity you are purchasing the policy from, is licensed. If in doubt, this information can be confirmed with the FSCA.
• When applying for a policy, ensure that you are noted as the policy holder, and that you receive a contract or policy document.
• Clearly state the relationship of the persons you insure under the policy. This will provide the insurer with an opportunity to determine whether insurable interest exist, and whether cover would be provided in the event of a claim.
• Be honest when you complete the application and claim forms, as misrepresentation might result in the cancellation of the policy, or repudiation of a claim.
• Do not sign any blank documentation. It is a contravention of the General Code of Conduct for any financial services provider to ask you to sign blank documentation.
• Ensure that you know what premium you will be paying towards the policy. Non-payment of premium will result in unpaid claims and a lapsed policy. Premiums may also increase on a yearly basis.
• Take note of the special conditions or exclusion applicable to the policy. Some insurers apply waiting periods to funeral policies. There are also age limitations to some policies.
• Do not take out too many funeral policies. The objective is to provide cover for the financial obligations arising from a funeral, and not to make profit of the death of a person.
If you are aggrieved with the conduct of any person or financial services provider that sold you a funeral policy, you may approach the Office of the FAIS Ombud to lodge a complaint.
