The worst mistake to make with your life policy

Gareth Stokes, FAnews Online Editor

Thousands of South Africans take out life insurance and other long-term risk policies each year, paying their monthly premiums religiously until policy maturation or claim date. You would think – after years of dedication – policyholders and beneficiaries would be bashing down their insurance company’s door to receive their payout. But this isn’t always the case. Policyholders sometimes lose track of policies while insurers cannot always trace beneficiaries when payments are due. Each year thousands of rand slip through the cracks to end up on insurers’ books as unclaimed benefit.

“An unclaimed benefit is a claim on which a notification has been received, but following notification of the claim all attempts to locate the claimant prove unsuccessful,” says Jimmy Miller, Senior Manager: Claims at Metropolitan Retail. These unclaimed benefits are typically spread between maturity and death benefits on life policies, with a small percentage generated from funeral business. Metropolitan Life reports the total value of all outstanding claims at year-end 2009 was R1.458bn. Old Mutual – one of South Africa’s larger insurers – had approximately R3bn in unclaimed benefits on its books at that date. “It should be noted that if a policyholder fails to claim benefits at maturity, the policy proceeds are shown as unclaimed benefits with effect from the maturity date, so the figure quoted includes benefits subject to claim,” adds Piet Spreeuwenberg, Client Services Manager at Old Mutual.

What happens to unclaimed benefits?

Life insurers have different internal policies for dealing with unclaimed benefits. Metropolitan says all claims are followed up for a period of three years after notification, in accordance with the Association of Savings and Investments South Africa (ASISA) Code on Unclaimed Benefits. Most insurers make use of external databases in an attempt to locate beneficiaries before writing off such claims to an inactive account. Old Mutual also makes use of financial advisers and tracking agencies to trace beneficiaries.

“Life assurance policies sometimes have specific maturity dates (this is no longer always the case, as many of the newer generation policies are ‘open-ended’) in terms of which benefits become contractually due,” says Spreeuwenberg. Unclaimed benefits are typically accounted for by the life insurance company and either held in the final investment structure (if appropriate) or swept into suspense accounts awaiting claim. Spreeuwenberg says these funds continue to generate returns as “determined by the nature of the underlying investment portfolio or policy.”

A policy with a fixed maturity date (such as the majority of retirement annuity and endowment policies) earns returns similar to short-term cash instruments, since the proceeds can be claimed at any time. These returns are adjusted for income tax and administration fees. The return earned in the case of ‘open ended’ contracts is typically the same as the underlying investment portfolios. Benefits on risk benefit policies (such as policies predominantly providing for death cover) are calculated in accordance with the contractual provisions which differ from contract to contract.

How to claim these benefits

There are a number of ways for policyholders to trace unclaimed benefits. The majority of the country’s life insurers follow processes as set out in the ASISA Code on Unclaimed Benefits already mentioned. “Claims against funds moved to the inactive accounts are always honoured,” says Metropolitan. “To access these funds beneficiaries can contact the insurer directly, or the offices of ASISA, who should assist them to claim outstanding benefits.” If you think you may be a beneficiary under a policy you should contact your life assurance company with as much detail as possible. Useful information would include the policy contract document, the identity document of the claimant, bank details of the claimant, a death certificate (in the event of the death of a life assured) etc.

“Most people claim within the first three to six months after the maturity date and 80% of customers claim within three years,” notes Spreeuwenberg. If you suspect you are due an unclaimed benefit we urge you to take action now and help to put a dent in the billions of rand lying on insurers’ books!

Editor’s thoughts: There are billion of rand in unclaimed benefits tucked away in investment accounts at South Africa’s large insurers. The process to secure payout of these funds is fairly simple. If you believe you are the beneficiary of a forgotten insurance policy then you can approach the insurer concerned or the Association of Savings and Investments SA (ASISA) for assistance. Have you successfully claimed on a ‘forgotten’ policy? Add your comment below, or send it to gareth@fanews.co.za