Ombuzz Issue 17 March 2011
Issue Number 17
March 2011
OMBUZZ
________________________________________IN THIS ISSUE
Policyholder Protection Rules: Amendments
We remind readers that the amendments to the Policyholder Protection Rules contained in Government Gazette No. 33881 became effective on 1 January 2011. Click here to download the Gazette document.
FUNERAL POLICIES
Complaints about funeral policies comprise an increasing percentage of complaints in our office (38% of complaints finalised in our office in 2010, up from 27% in 2009). Some of the common complaints about these policies are mentioned below. Policyholders and prospective purchasers need to check the policy wording to avoid the misunderstandings and disappointments reflected in these types of complaints.
Non-payment of benefits within 48 hours
Some insurers promise that they will pay the funeral benefit within 48 hours. The important part of the promise, which is often overlooked, is that payment can only be made within 48 hours of the submission of all the required documentation. Typical wording in the policy reads:
"Claims will be processed within 48 hours (two working days) once we have received all the required documentation."
We receive complaints where the complainants were under the impression that payment would be within 48 hours of notification of death, a misunderstanding that can lead to disappointment and may necessitate alternative financial arrangements for the funeral.
Death during the waiting period
In funeral policies, which are not medically underwritten, the insurer may control its risk by imposing a waiting period, during which death from natural causes will not be covered.
This aspect causes more complaints about funeral policies every year than any other single cause. Even where the deceased dies one or two days prior to the expiry of the waiting period, we are unfortunately unable to assist complainants. It is only if the death was accidental that it would be covered during the waiting period. Waiting periods are usually defined as a period (such as 6 or 9 months) commencing on date of commencement of policies. Occasionally there is an additional requirement that a certain number of premiums have to be paid e.g. 6 months and 6 premiums. Policyholders often incorrectly assume that the payment of e.g. 6 premiums means that the waiting period is over.
CASE STUDY
The policy commenced on 1 September 2009. The policy had a 6 month waiting period during which death from natural causes was not covered. The waiting period expired on 28 February 2010. The life assured died on 25 February 2010 due to natural causes. The insurer declined the claim in terms of the policy and the claimant complained to the office because she had paid 6 premiums to the insurer. We upheld the insurer as there were no grounds for instructing it to pay a claim during a waiting period. The policy read:
"No benefit is payable in respect of the death of an Insured Person due to natural causes during the Waiting period."
"'Waiting period' - a period of 6 months from the Date of Commencement of the policy."
It was of course very unfortunate for the complainant that the life assured had died just inside the waiting period.
Incorrect details
It often happens that the details of the insured are incorrectly provided at inception. This is particularly common when the insured is an extended family member. The name or date of birth which is recorded may differ from that which appears on the insured's identity document. This becomes a problem when the insured dies and the death certificate does not correspond with the insurer's records. The insurer may then refuse to pay out the claim.
It is in the interest of the policyholder to rather submit a copy of the actual identity document to the insurer at the time of taking out the policy or as soon as possible thereafter.
Name Differences
As regards name differences, it is up to the claimant to provide proof that the insured and the deceased are one and the same person. With the amount of fraudulent activity involved in insurance, insurers take an understandably cautious approach to claims where details in the death certificate and the application form differ.
CASE STUDY
In one complaint the father of a minor child had submitted a claim on her death providing a death certificate with a name and date of birth as 15 December 1984. The mother, on affidavit, gave a different surname and a date of birth as 16 December 1983 and the school gave confirmation of attendance with a third surname and date of birth as 15 December 1983. With 3 different surnames and 3 different birth dates, the insurer requested clarification. This seemed justified and we asked the complainant to explain the discrepancies. The complainant did not respond and we could accordingly not take the matter further.
Dates of birth
Where a date of birth on the death certificate differs from the insurer's details, section 59(2) of the Long-term Insurance Act applies which reads:
"If the age of a life insured under a long-term policy has been incorrectly stated to the long-term insurer, the policy benefits shall, notwithstanding subsection (1), be those which would have been provided under that policy in return for the premium payable had the age been correctly stated: Provided that if the nature of that long-term policy, or kind of long-term policy, is such as to render such arrangement inequitable, the Registrar may direct the long-term insurer to apply such different method of adjustment to the policy benefits of that long-term policy, or type of long-term policy, as the Registrar considers equitable in relation to the misstatement of age."
CASE STUDY
The policyholder had indicated that the life insured was in the age band 46 - 54 years when she insured her mother for R10 000. In fact the life insured had been in the band between 55 - 65 years. When the policyholder instituted a claim on the death of the insured the insurer refused to pay the claim and refunded the premiums of R630, on the basis that the age had been incorrectly stated and that the premium had been too low for the actual age. We pointed out that S59(2) of the Long-term Insurance Act applied.
In the absence of a different directive from the Registrar of Long-term Insurance, the insurer had to make the necessary adjustments to the benefit and pay it out to the beneficiary. The insurer paid the adjusted benefit of R6 051 to the beneficiary.
Divorced spouses
Husbands and wives may insure each others lives while they are married. The question is what happens when they get divorced. Does the divorced spouse remain covered? Insurers often decline claims for a divorced spouse under a funeral policy. The answer lies in the wording of the policy as the following case demonstrates:
CASE STUDY
The complainant had taken out a policy in 2001 and named her husband as a life assured. She had subsequently got divorced from her husband but had not removed him as a life assured and continued to pay a premium for him. When he died and she claimed under her policy the insurer refused to pay the benefit on the grounds that the deceased was no longer her spouse and did not fall into the category of "dependants".
The policy had no provision stating that cover ceased on divorce and the definition of "dependant" read as follows:
"a person residing in Southern Africa at the Entry Date if such person is the spouse of the Principal life assured......"
In the circumstances we advised the insurer that it would be obliged to pay the benefit. The insurer agreed to pay and the complainant was able to settle the funeral debt that she had incurred for her ex-spouse, with whom she had in any event been living prior to his death.
Premiums exceed cover
Funeral policies are almost invariably pure risk policies with no investment value or savings element and have relatively small benefit amounts. This aspect is not always fully appreciated by policyholders and we receive a number of complaints, particularly from elderly people, where the policyholder has paid more in premiums than the benefit amount over a long term. This can lead to bitter disappointment. The problem is if the policyholder at that stage cancels the policy there will be no further benefit under the policy. The policyholder therefore has a difficult choice. Unfortunately we are not in a position to assist policyholders who are in this situation.
