Life Ombud: Ombuzz Issue
SOME ASPECTS OF PREMIUMS
The duty to ensure that premiums are paid rests on the policyholder. The policyholder is usually the premium payer, but not always. Even if payments are made by way of a debit order or stop order the premium payer must still check that the premium payment was successful.
GRACE PERIOD
In life policies premiums are payable in advance. The Long-term Insurance Act prescribes that if premiums are not paid on due date there should be a grace period of at least 15 days before a policy lapses. Insurers may grant a longer period, often 30 days.
RISK ONLY POLICIES
In policies which only have risk benefits the grace period is usually the only leeway the premium payer has. If the premium is not paid during that period, the cover will cease.
DOUBLE DEBITS
Insurers do make use of "double debits" where a debit order has failed. If a debit order fails in one month the insurer will then do a "double debit" the following month to recover both the unpaid premium and the current month's premium. Insurers are not obliged to follow this practice and the practice may differ from one insurer to another with some insurers even lodging "triple debits".
CASE 1
The policy was a funeral policy which commenced on 1 July 2008. The premium was not paid for May and June. The lapse provision read as follows:|
"NON-PAYMENT OF PREMIUMS If a premium is not paid and received by the Insurer within 30 (thirty) days of the due date, then all benefits will automatically lapse at midnight on the last day of the preceding period of insurance for which a premium has been paid and all cover will be terminated."
The premiums were not paid for May 2009 as the debit order was returned due to lack of funds. The insurer lodged a double debit in June and the debit order was again returned.
The life insured died on 9 June 2009. The policy had lapsed and the insurer declined the claim. The executor of the deceased's estate complained to our office.
On the facts of this case the insurer had acted in accordance with the policy terms and we could not assist the complainant.
REINSTATEMENT
An insurer may be willing to reinstate a policy following its lapse. The insurer may, however, require a declaration of health in addition to the payment of arrear premiums. A declaration of health required the life insured to respond to a question(s) from the insurer regarding his health.
WAITING PERIOD
Funeral policies often have a waiting period when the policy commences. This is sometimes linked to the period the policy is in force and/or to the number of premiums that have to be paid. During the waiting period the insurer pays no claims or only pays benefits if the insured died of unnatural causes.
The waiting period usually also applies on reinstatement of a policy following non-payment of premiums.
In another matter we could come to the complainant's assistance because the wording of the policy did not allow the insurer to apply premiums to premium arrears, but a waiting period applied after reinstatement.
CASE 2
BACKGROUND
1. This policy commenced on 1 January 2007.The life assured died on 27 June 2009. The Insurer declined to pay as they said the policy was still in a waiting period.
2. The policy terms and conditions state that:
"Premiums are payable in advance and grace is given to the extent that the premium must be paid within the month cover is required. Should a premium be paid late for whatever reason, the policy will lapse and a new waiting period (no claim period) as stated below will be applicable. A joining fee is payable when joining a new policy."
3. The membership certificate states:
"Premiums are payable monthly in advance. Should premiums not be paid by the end of the month in which cover was required, the policy will lapse and after reinstatement will be subject to a new 3 month no claim period."
4. No premium had been paid during January 2009, and the policy had lapsed.
5. The next premium paid by the complainant was on 3 February 2009, and in terms of the insurer's usual practice they applied this payment to the outstanding January premium. The policy was reinstated with a three month waiting period.
6. Thereafter premiums were received but because the insurer was applying each payment to the premium due the month before, cover remained subject to a three month waiting period.
7. It was pointed out to the insurer that the terms and conditions of the policy do not make provision for collection of outstanding premiums on reinstatement. The only condition is that on reinstatement a three month waiting period will apply. If the insurer had applied the premium received on 3 February 2009, to the February premium, and not to the January premium, then premiums would have been up to date at the date of death.
8. Although regular letters were sent to the policyholder to warn that the policy was in arrears, the letters were very confusing. They made no mention that the policy was still in a waiting period nor did the letters mention the insurer's practice of applying premiums in arrear, after reinstatement, which then necessitates a double payment to bring premiums up to date.
9. A determination was issued in which the office took the view that, after the lapse of the policy, the payment of a premium will result in the immediate re-instatement of the policy. The only condition mentioned in the terms and conditions is that a new three month waiting period will apply from the date of payment of that premium.
10. Therefore the payment by the complainant of a premium on 3 February 2009 should have re-instated this policy with effect from 1 February 2009, and not 1 January 2009, and the waiting period should have applied from 1 February 2009 to 30 April 2009.
11. As premiums were paid regularly thereafter, and as the date of death was 7 June 2009, it was the office's decision that this claim should be regarded as valid and should be paid.
AUTOMATIC PREMIUM LOANS (APL) / NON-FORFEITURE PROVISIONS
There are certain policies, which have an investment component, that operate with APL's. This means that the insurer does not lapse the policy following non-payment. The policy wording will determine the manner in which the policy stays in force by making use of the surrender value of the policy e.g. as security for an APL. Some insurers charge interest on the APL.
The premium payer should ensure that the consequences of the APL's are acceptable or else make alternative arrangements to pay the outstanding premiums.
The policy will lapse when the APL exceeds the surrender value.
NOTIFICATION OF NON-PAYMENT OF PREMIUM
The Long-term Insurance Act requires an insurer to notify the premium payer when a premium has not been received. Unfortunately the Act does not state what the effect on the policy is when an insurer fails to send such a notification. Failure to do so does not therefore result in the policy remaining in force.
