How to be sure your life insurance will pay out

Laura du Preez | 02 December 2021

Laura du Preez has been writing about personal finance topics for more than 20 years, including eight years as personal finance editor for two leading media houses. 

If you want a be sure your life insurance policy will pay out should you die or become disabled or sick, there are five important lessons in the latest statistics released by the organisation representing the life insurers, the Association of Savings and Investment South Africa (ASISA).

1. Fully underwritten cover gives you greater certainty

South African life insurers paid 99.3% of all claims against fully underwritten individual life policies in 2020, ASISA statistics show. In total this amounted to R20.6 billion.

ASISA’s 2020 annual death claims statistics for fully underwritten individual life policies show that only 219 claims (0.7%) out of the 32 072 claims life insurers received were not paid.

Claims paid 31 853    
Claims declined      219    
  116 For material non-disclosure
  16 Due to exclusions
  44 Due to suicide exclusion
  43 Due to fraud
Total 32 072    
Source: ASISA

A policy that has full underwriting is one for which you will need to answer questions about your health, your job and your lifestyle, and possibly have some medical tests or allow your doctor to give the insurer your medical history.

This allows the insurer to accurately assess the risk you pose.

“The extensive underwriting process provides the policyholder with the peace of mind that beneficiaries will receive the benefit as stipulated in the contract, provided the contractual obligations were met by the policyholder,” Hennie de Villiers, deputy chair of the ASISA Life and Risk Board Committee, says.

You can also take out policies with partial or limited underwriting. It is much quicker to take out one of these policies, as you will only be asked a few questions, often telephonically, but these policies typically have clauses that exclude cover for pre-existing medical conditions.

This means if you die, are disabled or fall ill with a severe illness from anything for which you have been diagnosed or treated for in the past, you will not be covered by the policy, De Villiers explains.

If you or your family claim on a policy with limited underwriting, the insurer will then assess your health and call for your medical history to determine if you had any conditions.

This should be explained to you when you take out this kind of policy, the Ombudsman for Long Term Insurance, points out on its website.

The ombudsman’s office frequently highlights cases in which insurers reject claims as a result of a pre-existing medical condition exclusion and the issues that arise from this.

One of the issues that the ombudsman has highlighted is that the onus is on the insurer to prove that a pre-existing condition led to the claim.

This year the ombudsman’s office highlighted a case in which a policy was sold without advice by a tele-salesperson. The ombudsman found the provisions of the policy were not explained and said it was unreasonable for the insurer to expect the policyholder to familiarise herself with the terms.

Despite a dim view of the sales process, the ombudsman did, however, not order the insurer to pay the claim.

Instead, the ombudsman’s office found there was therefore no agreement about the policy and it should be declared null and void.

The ombudsman ruled that the insurer should refund the policyholder all her premiums paid to date. This amounted to just R663 – well below the insured amount.

Read more: What does it mean if cover is fully or partially underwritten?

2. Disclose every thing

Among 219 rejected claims on underwritten policies, most (116) were rejected because policyholders were not honest when they took out their policy, the ASISA statistics show.

If you purposefully don’t disclose to your insurer everything about your health or lifestyle that is relevant to it when it assesses the risk of you claiming, it is known as material non-disclosure.

If the insurer finds out there was material non-disclosure, it will reject your claim.

De Villiers says withholding material information from a life insurer during the underwriting process is dishonest and can leave your family financially destitute should you die and the insurer declines the claim for your death.

“If you are not sure whether information could be considered as material by the life insurer, rather disclose it,” De Villiers advises.

“If you cannot remember the exact details of a medical event, disclose what you can remember together with the details of the relevant healthcare provider. The insurer can then obtain more detailed information if it is required.”

Watch: Underwriting the key to understanding your life insurance policy

3. Suicide can disqualify a claim

In 2020, 44 claims on underwritten policies were declined because of a suicide exclusion clause.

It is not that insurers want to discriminate against people who are suicidal, but they hope to prevent those who are from taking out large life policies with the intention of committing suicide shortly afterwards.

De Villiers says most life insurers apply a two-year exclusion period to suicide which means if a policyholder commits suicide within the first two years of taking out life cover, no death benefit will be payable to their family or any other beneficiaries.

4. No payouts for fraudsters

If you are caught trying to defraud a life insurer, your claim will not be paid.

In 2020, life insurers declined to pay 43 such claims – often involving fraudulent documents and / or a syndicate aiming to get a claim paid to someone who is not entitled to the benefit.

Life insurers have forensic investigation procedures to detect fraud and institute criminal procedures when fraud is detected, Jacques Erasmus, senior executive manager for Individual Life Administration at Assupol, says.

When it is practical, civil proceedings may also be instituted to recover proceeds paid out to fraudsters, he says. Legal costs can make this impractical when amounts paid out are low, he adds.

In the case of former Tembisa policewoman Rosemary Ndlovu who was recently convicted of murdering family members and a boyfriend in order to claim R1.4 million on funeral and life policies, Assupol is proceeding with civil action to recover the benefits paid to her, Erasmus says.

5. Exclusions = no cover

Your policy document will list the exclusions on cover – typically for risky activities, such as extreme sports, or for working in dangerous conditions, for example, in another country.

De Villiers explains that if the policyholder is killed because of the excluded activity or in the excluded country or area, the life policy will not pay a benefit.

Just 16 of the 219 claims on underwritten policies that were rejected last year, were rejected because of exclusions, the ASISA statistics show.

Read more: What are the common exclusions on life, disability and funeral insurance policies?