The life insurance claims process can be confusing. We demystify the process by outlining the steps, and what you can expect when submitting a claim.
12 May 2023 · Fiona Zerbst
A life insurance policy provides financial assistance to your dependents and beneficiaries should you pass away. However, submitting a claim can be stressful, potentially robbing your loved ones of the peace of mind these policies aim to provide.
We demystify the claims process by outlining the steps, and what to expect, when submitting a claim. We also provide some tips for choosing between life insurance policies and providers.
Tip: Long-term savings play a vital role in protecting your family. Find out how to invest in inflation-beating products.
Life insurance is a vital safeguard for your family, and can be considered one of your most valuable financial assets.
In exchange for a monthly premium paid to your insurer, a rand lump sum is paid to your beneficiaries if you pass away. This can be used to cover deceased estate expenses and any outstanding debt you may have. It can also provide for financial dependents reliant on you at the time of your death.
“If you have some or all of these responsibilities, not having life insurance may leave your estate insolvent,” warns Cherise Erasmus, a certified financial planner at Crue Invest. “The assets your beneficiaries were meant to enjoy will likely be sold, and the cash used to cover estate liabilities.”
The life insurance claims process can be arduous, and it helps to have a financial adviser to assist.
“A financial adviser can draw up a risk plan for you based on your needs. This will include an estate plan and calculations,” says Erasmus.
“The life cover should ideally be as simple as covering your needs and paying the funds to the applicable beneficiaries.”
Whole life insurance covers you during your lifetime and provides a guaranteed payout when you die, provided you have been keeping up with policy payments.
You can pay a level premium, which makes your policy more affordable, or an escalating premium, which should ensure a larger payout.
Term insurance, on the other hand, means you are insured for a specified period – for example, to cover the life of your home loan – and you would need to reapply if you require additional cover. You can only pay a level premium for this type of cover.
As an initial step, the claimant(s) will need a notification of death document, which can be obtained from a doctor or pathologist.
This document must be submitted to Home Affairs, who will issue a death certificate. The latter must be given to the insurer, along with the insurer’s claim form, and the identity documents of the deceased and any beneficiaries.
“The insurer may also require proof of relationship, such as a marriage certificate for spouses and birth certificates for children,” says Erasmus.
If you purchase a policy through a financial adviser, this will secure the adviser’s guidance to your beneficiaries when submitting a claim. However, if you purchase a policy from a direct insurer, your beneficiaries may have to go through the claims process alone, or with a family member or friend.
If a financial adviser arranged the life insurance policy, your beneficiaries will need to advise them in the event of your death. An employer will do this if the cover was an employee benefit.
“Your financial adviser will request the claim form as well as initial requirements from the insurer, and will assist your beneficiary to complete the documents correctly, as well as collate or collect any additional requirements,” says Erasmus.
Once the first step has been completed, the initial requirements, including FICA documents, must be sent back to the insurer, along with any requests for additional requirements, based on the documents submitted.
“Only once these have been submitted will the claim be handed over to a dedicated claims consultant, who will start the assessment process,” says Erasmus.
Once the claims assessment department receives the documentation, they will make an informed decision about the claim.
“If there are any exclusions or waiting periods on the policy, such as the standard waiting period of two years for suicide, the claims department will look into these,” notes Erasmus.
Once the assessment is complete, the claim will either be approved or denied.
If the claim is denied, the insurer will provide a reason for this. If your beneficiaries are not satisfied with the reason, they have the right to submit a dispute (see below).
A claim will only be accepted if premium payments are up to date. Non-payment means the policyholder is not covered under any circumstances.
If the claim is approved, the benefit amount will be confirmed. Payment is usually made within a few days, provided the process runs smoothly, according to Erasmus.
Delays are not uncommon in life insurance claims processing.
Often, the insurers don’t know who the beneficiaries of the policy are, or they are unable to contact them.
“Nowadays, beneficiaries have to provide extensive details to an insurer – you can no longer just provide your name and date of birth,” notes Munaf Mukadam, a financial adviser at Gradidge Mahura Investments.
Medical practitioners who withhold critical information required to validate claims may also cause a delay, says Yazeed Adams, head of Compliance at MiWayLife. For example, if the policyholder dies from unnatural causes, the insurer may require police reports.
The National Health Act disallows access to a patient’s health information without their consent, unless the medical professional has a justifiable reason for sharing the information.
“The introduction of the Protection of Personal Information Act (POPIA) has strengthened the case for confidentiality,” Adams notes. “If a medical professional is uncertain about when to grant access to information, a payout may be delayed.”
Life claims can be rejected if vital information, such as a chronic illness, hasn’t been disclosed.
If such information had been provided upfront, the insurer would have made an offer based on this information, which would ensure cover, albeit at a higher premium.
“An insurer is within their right to reject a claim based on the non-disclosure of important information, or the submission of false information,” Erasmus notes.
If the policyholder has a dangerous hobby, such as skydiving or scuba diving, insurers may exclude these from the policy. The insurer would reject a claim if death resulted from such an activity.
Providing the correct information and understanding the policy’s terms and conditions will ensure a smooth claims process for your beneficiaries.
When you nominate your estate as your beneficiary, notes Erasmus, this is generally for liquidity purposes – meaning, to cover expenses, so that assets in the estate can be left to beneficiaries.
“When you nominate a beneficiary, these funds fall outside the estate and are paid directly to the beneficiary,” she says.
It’s important to note that having a deceased beneficiary on your policy could mean the person’s portion would go to your deceased estate.
“This can have the effect of trapping funds in the deceased estate and increasing its net value which, in turn, could potentially increase executor’s fees and estate duty,” notes Erasmus.
Your beneficiaries have recourse in the case of a life insurance claim rejection; however, Mukadam says that rejections are rare and are usually due to non-disclosure or fraud.
It's possible to query the insurer’s decision via its complaints department. If this is unsuccessful, the ombud for long-term insurance can mediate (see below).
However, it may be quicker to try to resolve the matter through a financial adviser, says Mukadam.
The ombud for short-term insurance can mediate between your beneficiaries and your insurer. This is a more cost-effective route than contesting the matter in court, which involves hiring an insurance claim lawyer.
A case must be referred to the ombud within 90 days of rejection of the claim.
Financial advisers understand the claims process, and partner with dedicated consultants on the insurer’s side. For this reason, working with them when claiming can reduce misunderstandings and unnecessary delays, says Erasmus.
“A financial adviser can simplify industry jargon, which makes the process more tolerable for beneficiaries during a difficult time,” she notes.
She adds that providing the required documents timeously, and completing claim forms properly, reduces back-and-forth communications.
It’s important to ensure that hard copies of your policy documents are stored safely. It’s also wise to store them digitally. Ensure you have a record of all policy changes you’ve made.
“The most important documents are certified FICA documents and a valid last will and testament,” says Erasmus.
Regularly reviewing your policy ensures you understand the cover you have in place, and where and how your beneficiaries can claim, says Mukadam.
Any substantial life changes, such as getting married, buying a house, changing careers, or taking out a loan, will likely affect your policy information.
Revising your policy helps you plan for your dependents’ future needs, allowing your family members to meet their financial goals if you pass away.
Neglecting to keep your beneficiaries updated can lead to serious problems, says Mukadam. “For example, your former spouse may receive a payout, rather than your current spouse and children.”
He adds that you should also ensure your beneficiaries have the contact details of your financial adviser or insurer, so they know whom to approach if you pass away.
While under-insurance is a potential problem with any policy, Erasmus notes that it’s equally important to avoid being over-insured.
“If you’re over-insured, you’re paying extra premiums for cover you don’t need, and that money could be invested or used to relieve cash flow constraints,” she says.
Your age and health are considered at policy inception and affect your premiums. In short, younger, healthier people pay less, says Mukadam.
However, your age and health should have no impact on the claim if you’re with an insurer that underwrites your life upfront, says Porcha Schelhase, a financial adviser at Liberty.
“Upfront underwriting ensures that pre-existing conditions are taken into account, and any future changes in your health are covered by the insurer,” she notes.
It’s essential to understand what type of life cover you have in place. For instance, accidental life cover will only pay out if you die due to an unforeseeable accident, so it’s important to ensure your policy provides cover for all circumstances.
“If there is no specific exclusion against your cause of death, the insurer should pay out,” says Schelhase.
Life policies generally have standard exclusion clauses pertaining to suicide, illegal activities, and drug and alcohol abuse. Insurers are unlikely to exclude dread diseases such as cancer, but you will likely pay a higher premium, according to Mukadam.
If you have a dangerous hobby, take part in extreme sports, or frequently work in dangerous countries where kidnapping or terrorism are rife (such as Afghanistan or Iraq) or a state of war prevails (e.g., Ukraine or Syria), you may not be covered, or you will have policy exclusions.
Mukadam says insurers will typically not pay out if the policyholder dies by suicide within two years of taking out the policy, as this may indicate premeditation.
Tip: If you’re struggling to pay back what you’ve borrowed, consider debt consolidation.
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