- While most claims are paid out as they should be, thousands last year were not.
- Some of the main reasons include fraud, non-disclosure of material information, and policy lapses.
- Insurers may also fail to pay out in the case of suicides.
- For more financial stories, go to the News24 Business front page.
Most life and funeral insurance policies pay out as they should, giving South African families the protection they need when a breadwinner dies or a family member needs a funeral.
The latest statistics from South African life and funeral insurers are evidence of this showing that close to 96 percent of claims lodged were paid, resulting in the beneficiaries of more than 890 000 policies being paid almost R40 billion last year.
The statistics released by the Association for Savings and Investment South Africa revealed that while only 4.1 percent of claims lodged were denied, this still amounted to some 38 000 disappointed claimants, so it is worth knowing why claims are denied.
Fraud and non-disclosure
A number of the rejected claims were found to be submitted by fraudsters after being involved in a crime that resulted in the death of the policyholder, Gareth Friedlander, a member of the ASISA Life and Risk Board Committee, says.
Life insurers are increasingly detecting these fraudulent claims, resulting in some high-profile convictions.
Another form of fraud occurs when you take out a policy without disclosing important or relevant information about a medical condition or your lifestyle in order to get cover or to get it at a lower premium than you should be paying.
Friedlander says since you know more about the risk that you are seeking to insure than the insurer, the law compels you to honestly disclose all information likely to influence the insurer’s judgment when determining appropriate policy terms and premiums. This ensures that every person pays a fair premium without subsidising someone less healthy.
Withholding material information from a life insurer during the underwriting process is dishonest, and gives a life insurance company the right not to pay out a claim and declare your policy void.
This could have devastating financial consequences for your beneficiaries, so it is better to be honest when taking out cover. If you have been treated for any condition, your insurer will be able to find out about your condition.
Cover exclusions
According to ASISA, the three main exclusions that caused claims to be rejected are:
Suicide
Most policies exclude cover for suicide if the policyholder takes their own life within the first two years of taking out the policy.
Health conditions or dangerous activities
If you have a serious health condition when you take out a policy, your cover may exclude death resulting from that condition.
The policy may also exclude cover for death from dangerous lifestyle activities such as motorcycle racing. You should be informed of this exclusion when you take out the contract.
Waiting periods
Funeral cover is generally sold without the policyholder having to have any medical examination or blood tests. To protect the funeral insurer from people buying funeral cover only once they have a serious illness and are expecting to die, this cover is typically sold with a waiting period of six months for deaths due to natural causes.
Policy lapses
Policies will also not pay out if you have not paid your premiums and have allowed the policy to lapse.
ASISA says this is a common reason why claims against credit life policies – policies taken out to pay off a loan or other credit agreement should you die – are rejected.
When you default on your loan repayments, no premiums are paid to the life insurer and your cover lapses, ASISA says.
Claims on these policies will also be declined if you have settled the outstanding loan balance. Payouts on credit life insurance policies typically decrease as the outstanding loan amount decreases, and the cover ends once your debt has been repaid.
Real life lesson
A settlement reached with a life insurer after the Financial Advisory and Intermediary Services (FAIS) Ombud intervened highlights how life insurers apply exclusions, and complaints are only entertained if it is clear that these were not properly explained.
According to a recent newsletter from the ombud, a woman applied for life cover, but was denied cover for death from any natural causes including any illness or health event and was only given accidental cover – cover for dying in an accident or as a result of a crime.
She subsequently died of natural causes and a claim on her policy was denied.
According to the woman’s daughter, her mother had not fully appreciated that she had been offered “Life Cover: Non-Natural” for accidental deaths only and not the life cover for which she had applied.
The insurer listened to the recording of the call between the sales agent and the woman and found that despite all the disclosures the agent made, there were some concerns.
The insurer therefore agreed to reconsider the contract based on the cover the woman might have qualified for at a higher premium. This resulted in the insurer offering her daughter a death benefit of more than R232 000.
Accidental death cover is cheaper than life insurance as it does not cover you for death from all possible causes, but it will not help your dependants if you become ill and die. or die from something like a heart attack.
Cover switches
The FAIS Ombud warns that it often investigates complaints where someone has applied for life cover, but after the medical underwriting questions are answered, the life insurer finds that the person only qualifies for accidental cover.
The ombud says often, the consumer takes out the accidental cover without being properly aware of the implications of the change in cover.
The office says there are also cases where individuals apply for and are accepted for life cover benefits. However, they then fail to complete specific medical tests, or the medical tests have negative results, and the cover is automatically altered to accidental cover at the same premium without adequate communication to the consumer.
The ombud says it is vital that you complete any medical underwriting requirements and that all the medical disclosures you make are true and comprehensive.
It is also important to consider any policy documents provided to you – not only when you take out the policy but at regular intervals after – so that you can confirm that the cover provided is appropriate to your needs, the ombud says.
This article was first publish on SmartAboutMoney.co.za, an initiative by the Association for Savings and Investment South Africa (ASISA).
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