Case 1 – Interest bearing loan prior to 1 January 1999
On 15 January 1985 the policyholder applied for a policy. The policy was issued with date of commencement 1 April 1985 and a premium of R41,07 payable by monthly stop order. Life cover of R10 000 was provided and there were supplementary benefits included to cover accidental death of R10 000 and a co-insured benefit of R7 000 with accidental death cover of R7 000. The policy also had an investment component. The term of the policy was 25 years.
On 25 July 1988 the policyholder applied for a loan, and R415 was paid to him. Interest in terms of the loan application was to be determined by the insurer (which is common to all interest bearing policy loans).
The loan was not repaid and no demand was made by the insurer but on 5 February 2000 the policy lapsed as the loan value plus interest exceeded the surrender value. The loan debt was R5 891,79 and the fund value was
Despite letters advising the policyholder that the policy had lapsed, premium deductions continued until 3 months prior to the policyholder's death on 8 January 2002. A claim was submitted but the insurer declined the claim on the basis that the policy had lapsed. Premiums that were deducted after the lapse were refunded.
This was a case where the policyholder really had no value from the policy apart from a R415 loan, despite the fact that he paid premiums amounting to some
R7 288 over 14 years and 8 months prior to the lapse, and some thereafter.
We pointed out to the insurer that apart from anything else they had created an expectation by continuing to deduct premiums after the "lapse" date and we, therefore suggested that they reconsider their position. We suggested that it may be more equitable to treat the loan as a part surrender rather than a loan.
The insurer has agreed to make an ex gratia payment but the details of such payment still have to be finalised.