IN THIS ISSUE

Parties to a life policy The insurer and the applicant/policyholder are the parties who enter into a life assurance contract. There is sometimes confusion about the rights of the life insured, the premium payer and the nominated beneficiary as the following cases demonstrate.

Case 1

The complainant was the life insured under a policy which had been taken out in 1993 by his wife. They subsequently divorced and his wife maintained the policy. At some later stage she ceded the policy outright to the intermediary who had originally sold the policy to her. It seems that the intermediary was related to her as the complainant referred to him as his ex brother-in-law.

The complainant complained to us when he became aware that this third party owned a policy on his life. He was very unhappy about this and also because the insurer would not provide any information about the policy to him. He wanted the policy on his life cancelled.

As he was simply the life insured and not the policyholder he had no right to information about the policy. We could also not assist him to cancel the policy as only the policyholder could do this.

At application stage his wife had an insurable interest in his life and that is the only stage when the issue of insurable interest has to be determined. The fact that a third party subsequently took cession of the policy was irrelevant to the issue of insurable interest.

The complainant was not happy with the situation. As he put it “In this day and age when contracts are being taken out on individuals I feel very uneasy.” Although we had sympathy for his dilemma we could not assist him.

Case 2

In another complaint, involving a funeral policy, the complainant was the premium payer and the beneficiary on a policy which had her sister-in-law as life assured and policyholder. A year after inception the policyholder changed the beneficiary nomination. The complainant discovered this 2 years later. She objected to this step to the insurer. The insurer said it could not assist her and she then complained to us.

This was once again a complaint where we could not interfere with the rights of a third party. The policyholder had every right to deal with the policy and nominate a beneficiary. As premium payer and beneficiary the complainant had no rights vis á vis the policy.

We pointed out to the complainant that she had the right to stop paying premiums if she so wished.

Case 3

Application forms for insurance, particularly funeral insurance, can create confusion about the parties to the contract.

A funeral policy was taken out, with the assistance of an insurance agent, on which the complainant was both the premium payer and the beneficiary, and his brother the life insured. The complainant had negotiated with the intermediary at application stage. The life insured subsequently died and the complainant claimed under the policy.

It appeared at claim stage that the complainant had intended to take out a policy on his brother’s life. The life insured had incorrectly been indicated as the policyholder as the application form did not provide for 2 different people to be noted in these capacities. The life insured had not signed the application form; the complainant had signed the form in the space provided for the applicant, and paid the premiums.

The insurer declared that there had never been a contract (because the “policyholder” had not signed the application form) and it offered to refund the premiums to the complainant. He rejected the offer and lodged a complaint with our office claiming the death benefit.

As a premium payer or beneficiary the complainant was not a party to the policy. However, we argued that it was clear that the complainant had intended to take out the policy. The application form appeared to have been incorrectly completed by the agent as the complainant should have been indicated as the policyholder. Despite this the insurer had then brought the complainant under the impression that a valid contract existed by accepting the flawed application form and accepting his premiums. Only when a claim arose did it raise a defence that the application had not been signed by the correct party. In the circumstances we requested the insurer to reconsider its decision. The insurer did so and agreed to pay the claim.

We also asked the insurer to consider revising their application forms so that the applicant could indicate on the form if the life insured was a different person.

Case 4

A beneficiary nominated under a revocable nomination has no rights under the policy until the death of the life assured and acceptance of such nomination. The following case demonstrates this principle.

A policyholder nominated her 2 children as beneficiaries for proceeds on death, under a policy. Both the policyholder and her son were the lives assured, with the death benefit only becoming due on the death of the second life assured.

When the policyholder died the policy fell into her estate. The executor subsequently ceded the policy to the son, one of the heirs under the deceased’s will.

The daughter who was the other nominated beneficiary and also an heir, complained to our office when the insurer subsequently paid the maturity proceeds to the son.

The policy had not yet become payable on the death of the mother, who was the policyholder. It would only become due on a certain future date (the maturity date) or earlier death of the second life assured. The beneficiaries could not yet accept their nominations. The executor was, therefore, entitled to cede the policy as the policy vested in the estate.

We could not assist the complainant with a claim against the insurer after the maturity value was paid to her brother. Even if one assumes that the beneficiary nomination was still valid after the cession, it still did not assist the complainant as payment was correctly made to the cessionary on maturity of the policy.

There was a question raised about whether the executor’s cession to the son was in accordance with the will, but that was an issue outside of our jurisdiction. The complainant had to pursue any possible claim against the executor herself, we could not assist.