Nicolette Dirk, finance writer, Justmoney.co.za
Despite an increase in declined death benefit claims, life companies paid 98.9% of all claims made against fully underwritten life policies in 2013 to the value of R8.4 billion. Only 1.1% of death benefit claims to a value of R178.8 million were declined.
According to Peter Dempsey, deputy CEO of ASISA, the statistics showed that the majority of death benefit claims are paid by life insurers.
“This is important since policyholders and their beneficiaries need to be able to trust that their policies will pay when a life-changing event occurs,” said Dempsey.
Death benefit claims statistics for 2013 were submitted by the 14 long-term insurance companies that offer fully underwritten life cover.
The statistics show that last year these life insurers honoured 36 199 (34 724 in 2012) death benefit claims and declined 394 for 2013 (352 in 2012).
South Africans are underinsured
Last year ASISA’s 2013 Life and Disability Insurance Gap Study showed that South Africans remain critically underinsured for death and disability by as much as 60%.
The insurance gap, which is the difference between existing life and disability cover and the actual insurance need of South African earners, widened to R24 trillion.
Andre Goethals, manager of Credit Life at IDM, said affordability is one of the main reasons why so many people are underinsured. People don’t have disposable income and therefore cut out the expense of paying for insurance premiums.
“People still don’t understand the importance of having enough cover and sometimes their broker also does not do a proper analysis of how much cover their client will need,.” said Goethals.
He added that sometimes a client’s insurance would not cover all their debt and their income when they can no longer work. Expenses like a home bond and your loans should also be taken into consideration when choosing life insurance.
Declined death benefit claims
In 2013 claims were declined mainly for non-disclosure (61.9%), suicide (24.1%), underwriting exclusions (7.8%) and fraud (4.6%).
Dempsey said that in 2012, of the total number of claims declined, 70.3% was due to non-disclosure. In 2013, the percentage was down to 61.9%.
“More consumers are realising that it is not in their interest to withhold material information from insurers, as this is likely to result in policies being cancelled or claims being declined,” said Dempsey.
In order to assess risk accurately, a life insurer relies heavily on the applicant disclosing complete medical history and detailed lifestyle information likely to influence the judgment of the insurer when determining appropriate policy terms and premiums.
“This is important because it allows the life insurance company to set premiums for different risk categories, thereby ensuring that every person pays the premium that is appropriate for their health and lifestyle circumstances,” said Dempsey.
In 2013 a slightly higher number of claims were declined due to suicide than in 2012. Of the total claims declined last year 24.1% was due to suicide, while in 2012 the percentage was 20%.
All life insurers apply a two-year exclusion period to suicide in order to prevent someone from taking out life cover with the intention of committing suicide shortly afterwards. This means that if a policyholder commits suicide within the first two years of taking out life cover, no death benefit will be payable to the beneficiaries.
Goethals said that insurance companies also do not cover for disability should you survive the suicide attempt.
In 7.8% of all claims declined in 2013, the death of the policyholder was caused by a condition that had been specifically excluded by the policy.
If, for example, the policyholder suffers from diabetes, but is healthy otherwise, the life insurer may exclude this condition from the life cover. This means that if the policyholder is killed in an accident or dies of a cause unrelated to diabetes, the life policy will pay. If the death is related to the excluded condition, the death benefit will not be paid.
Dempsey says 4.6% (3.4% in 2012) of death benefit claims declined was due to criminal intent by either the policyholder or the beneficiary. Claims fraud usually involves the submission of fraudulent documentation and/or syndicate activity aimed at getting the life company to pay a claim to someone not entitled to the benefit.
What must you disclose to your insurer?
• Provide detailed information on your state of health and medical history as well as that of your immediate family.
• Be honest about your smoking and drinking habits.
• Disclose dangerous recreational activities such as skydiving and deep sea diving. Also, if your occupation involves risky activities you need to disclose these. Examples include mining, flying aircraft, and working with weapons.
• Make sure you nominate a beneficiary. This enables the life insurance company to pay the proceeds of your life policy directly to your beneficiary, thereby bypassing the deceased estate (although you will still have to pay estate duty on the policy proceeds).
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