It is no secret that the current economic climate is forcing cash-strapped consumers to revaluate and reprioritise their finances in order to stay afloat. Unfortunately, this has seen many sacrificing their short term insurance cover, which could prove detrimental in the long run.
“For many, this is an interim solution with disastrous consequences. When claims are rejected because the premium has not been paid, consumers suffer the loss of the insured item. In many cases the insured item is a financed vehicle or a house that is subject to a loan. In such a case, the consumer still needs to repay the loan to the financier despite the item no longer being in use or having been written off as a total loss,” stated Ombudsman for Short Term Insurance (Osti).
The decision to miss paying insurance premiums to cover other financial obligations, at times stems from a lack of understanding as to the consequences of non-payment.
Osti outlines the following as principles that apply to monthly policies:
-If payment on a premium has not been paid for a specific month, then there is no cover for that month.
-“It is the responsibility of the consumer to ensure that there are sufficient funds in his/her bank account to cover the deduction of the premium payment,” stated Osti.
-It is not the insurer’s responsibility to notify the consumer of a non-payment of the premium.
-“Most policies contain an exclusion against cover if the consumer places a ‘stop payment’ (a request made by a consumer to a financial institution to cancel a payment that has not yet been processed) on the premium. A stop payment is regarded as a cancellation of the policy by the consumer. In such circumstances, the insurer will not continue debiting the premium in the months that follow,” said Osti.
-Premiums are paid in advance as it is paid for a consumer to be covered in the event of a loss or damage for the month ahead.
The grace period
“The Policyholder Protection Rules (‘PPR’) have introduced a safeguard to give consumers who fail to pay a premium another opportunity to pay the premium in order to ensure that the policy continues to provide cover,” explained Osti.
In light of this safeguard in the event of non-payment for a specific month insurers are obliged to grant consumers a grace period.
“Whilst PPR does not prescribe the actual period of grace that an insurer must give to a consumer, it states that this period may not be less than 15 days. Therefore any policy wording that provides for a grace period of less than 15 days from the agreed premium payment date would be in breach of PPR. In short, the grace period may be 15 days or more than 15 days after the agreed payment date but it may not be less than 15 days,” stated Osti.
According to the safeguard the grace period only applies from the second month after the policy starts.
Points to take note of to ensure continuous cover:
-The date of payment or debit order discussed and agreed upon at the inception of the policy needs to be carefully chosen by the consumer as to make sure there will always be sufficient funds available.
“If the premium is not received on the due date, some insurers will give a grace period of 15 days whilst others will double debit the consumer’s account the following month by debiting the premium not received and the premium due for the next month. In other words, these insurers give a grace period of one month and not just 15 days.
“In addition, some policies allow insurers to charge an administration fee in the event of the non-payment of the premium. Therefore consumers must familiarise themselves with the relevant provisions of their policy wordings dealing with the insurer’s rights and the implications for the consumer in the event of the non-payment of premium,” highlighted Osti.
-Premiums can’t be paid to back date cover.
-“The insurer may amend the policy terms and conditions at any point provided the consumer has been given 30 days’ notice of the changes.
“Consumers must therefore ensure that they read all correspondence received from insurers as it could relate to the insurer giving notice of an increase in the premium. In such event, the obligation is on the consumer either to accept the increased premium, and ensure that there are sufficient funds in his/her bank account to meet the new premium, or to cancel the policy with the insurer by giving proper notice if he/she is not prepared to accept the increase in the premium,” Osti stated.
-If a policy is cancelled by an insurer due to non-payment of premiums, the consumer is then obliged to inform the new insurer should they seek to take out new cover.
Making sacrifices due to financial constraints is inevitable, but it is equally important to make sure that these decisions won’t be detrimental to you and your family’s wellbeing in the long run.
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