Non-disclosure the main reason life policies don’t pay out
- Posted by Roger Hendricks
- On 01/20/2016
- 0 Comments
Beneficiaries of fully underwritten life policies received death benefits of more than R10.3 billion in 2014, after life assurers honoured 98.9 percent of all claims made last year. Only 1.1 percent of death benefit claims, to a value of R388.9 million, were declined, mainly because of non-disclosure by policyholders.
This is according to the third annual consolidated death benefit claims statistics for fully underwritten life policies, which were released this week by the Association for Savings & Investment SA (Asisa).
Fully underwritten life policies are issued only if the policyholder has completed a full underwriting process, which may involve a comprehensive assessment of the life insured’s medical history.
Death benefit claims statistics for 2014 submitted by the 14 long-term insurance companies that offer fully underwritten life cover show that 36 421 (36 199 in 2013) death benefit claims were honoured, whereas 389 (394 in 2013) were declined.
In 2013, life assurers paid 98.9 percent of all claims, to a value of R8.4 billion. Although the percentage of claims paid remained at 98.9 percent in 2014, the value of claims honoured increased by nearly R2 billion to R10.3 billion.
Peter Dempsey, the deputy chief executive of Asisa, says that fully underwritten life policies will pay out if a claim is not fraudulent, or if the policyholder did not commit suicide within the first two years of taking out the policy, did not die as a result of an excluded condition, or did not withhold important information from the assurer when applying for the policy.
Dempsey says the number-one reason provided by life assurers for declining claims continues to be non-disclosure. Of the claims that were declined last year, 75.8 percent (61.9 percent in 2013) were declined because of non-disclosure.
Non-disclosure refers to the deliberate failure of policyholders to divulge information about a medical condition or an aspect of their lifestyle in an attempt to secure lower premiums or to obtain cover without exclusions. Dempsey says this is short-sighted, because there is a real risk that the information that the policyholder was trying to hide from the life assurer will surface at claims stage. This may result in the claim being declined, potentially leaving beneficiaries destitute.
He says policyholders should apply the following guidelines when applying for life assurance, to ensure full disclosure:
* Complete the questionnaires on your medical history and lifestyle yourself, and make sure that you are completely honest in your answers;
* Provide detailed information about your state of health and medical history, as well as that of your immediate family;
* Be honest about your smoking and drinking habits; and
* Disclose dangerous recreational activities, such as skydiving and deep-sea diving. Also, if your occupation involves risky activities, you need to disclose these; examples are mining, flying aircraft and working with weapons.
Dempsey says the number of claims that were declined because of suicide dropped significantly in 2014, from 24.1 percent in 2013 to 13.3 percent.
All life assurers apply a two-year exclusion to suicide to prevent someone from taking out life cover with the intention of committing suicide shortly afterwards.
Underwriting exclusions accounted for 8.1 percent (7.8 percent in 2013) of the claims that were declined in 2014.
If, for example, a policyholder suffers from diabetes but is otherwise healthy, the life assurer may exclude this condition from the cover. This means that if the policyholder is killed in an accident or dies of a cause unrelated to diabetes, the policy will pay out. If the death is related to the excluded condition, the benefit will not be paid. Exclusions such as these allow assurers to provide life cover at affordable rates.
Criminal intent by either policyholders or beneficiaries accounted for 2.9 percent (4.6 percent in 2013) of declined death benefit claims in 2014.