IN THIS ISSUE

Funeral Insurance: What to watch out for

The focus of this Newsletter is to alert policyholders and lives assured that funeral cover may terminate on retirement or age 65, in certain policies.

Case 1

It should be noted that some funeral policies contain a clause terminating cover of a group scheme member/policyholder and his or her spouse on the person´s 65th birthday. Upon termination of the cover for the member/policyholder, the cover in respect of any other family member may also terminate.

We recently received a complaint in which the office was called upon to consider the application of the following clause.

"UPPER AGE LIMIT

Cover will cease in respect of the Principal Insured Person and Spouse on such Person´s 65th or in case of Eligible Children on the 25th birthday if in full time education. Cover will cease in respect of any extended family in the event of the Principal Insured Person´s membership terminating on the attainment of their 65th birthday."

• The complainant became a member of a group scheme (which was underwritten by an insurer) in 2002. The policy covered the member, her spouse and the children at a basic monthly premium of R45.00.
• The complainant´s husband died on 4 February 2009 at the age of 67. Upon his death, the complainant submitted a death claim to the insurer. The insurer relied on the above clause and declined the claim on the basis that the deceased was no longer covered at the time of his death. According to the insurer, the deceased´s cover ceased in 2007 when he reached the age of 65.
• The complainant was aggrieved by this and lodged a complaint with our office. We came to the conclusion that there were no legal grounds to uphold her complaint. In other words, we found that the insurer had acted within its contractual rights in declining the claim

We are, however, concerned about the effect such a clause would have on lives assured who have attained the age of 65 because it would be difficult, if not impossible, for them to obtain alternative cover in the market at that stage. We intend to engage the regulator and the industry in this regard. Consideration should be given to find ways in which this problem can be minimised.

Case 2

The life assured had been a member of a group funeral scheme arranged through a labour union. The policy provided that the member could apply for a paid-up policy (i.e. a policy on which no further premiums are payable) when taking retirement. The life assured died some years after retirement and the death claim was declined because he had failed to apply for a paid-up benefit when he went on retirement.

The complainant, the deceased´s son, contested the insurer´s decision on the basis that:

1. The life assured was not directly provided with the terms and conditions of the policy.

    

2. The life assured had been illiterate and could not have been expected to know the policy rules unless he was alerted thereto by the insurer.

    

In response the insurer contended that it had informed members through "road shows", and asked labour union shop stewards to advise members of the group scheme about policy provisions and requirements. However, there was no certainty whether the correct information had in fact been relayed to the life assured.

In dealing with the matter we considered that the terms and conditions of the group scheme provided that the paid-up benefits must be applied for within 6 months of retirement. Any changes imposed by our office to these policy terms would affect the fundamental actuarial assumptions (which seemed to be based on an assumption that some members who could apply for paid-up benefits would fail to do so), the paid-up reserves and the solvency of the group scheme and would also consequently lead to an increase in premiums.

We came to an understanding with the insurer that it would pay this particular claim on an ex gratia basis. Furthermore, we reached an agreement with the insurer that the issue of application for paid-up benefits will be further discussed with the industry body, ASISA, as it appears that it is common practice that the paid-up benefits have to be specifically applied for on retirement and it is not clear that this is always understood by retiring members.

CAUTION

It is necessary for all funeral policyholders and members of group funeral schemes to check their benefits to avoid disappointment. The need for funeral cover increases as lives assured grow older and it must not be taken for granted that cover will automatically continue after retirement, or age 65, as these two cases demonstrate.

We have mentioned in a previous Newsletter (Issue Number 9) that we are concerned that older policyholders are sometimes left in the lurch as regards funeral cover. We have expressed our concern to the regulatory authorities and we will do so again.