CR53 Annuity – lump sum of some R400 000 invested

See too: Annuities, CR,

CR53

• Annuity – lump sum of some R400 000 invested – nil guarantee – annuity payable monthly in arrears for life – annuitant 57 years of age and in poor health at the time of its conclusion – annuitant dies soon thereafter – alleged misselling.

Background

Mrs A, a childless divorcee, had some R400 000 available for investment. It was destined to be her sole source of income. She sought the advice of a good friend of hers, Mr B, an intermediary associated with company X. They eventually settled on a nil guarantee annuity issued by company X, payable monthly in arrears for life, with a 5% annual escalation. The policy read: “The life assured will receive the annuity amount until death occurs. The contract will cease on the death of the life assured” and “R2090.85 payable on the first due date and monthly thereafter. The final payment will be made on the payment due date immediately prior to the date of death of the annuitant.”

An odd feature of the contract was that Mrs A nominated her two nephews as beneficiaries, which, considering that the annuity would have no residual value, was a contradiction in terms.

Mrs A, sadly, died relatively soon after the conclusion of the contract which meant that the balance of her funds reverted to company X. Her sister-in-law, Mrs C, mother of the two beneficiaries, raised a complaint with company X and eventually with our office. She alleged that Mrs A was, to the knowledge of Mr B, 57 years old and in poor health at the time of the conclusion of the contract; that Mrs A was naïve about financial matters; the fact that she nominated her beneficiaries showed that she wanted the balance of her funds to revert to them; and that she should rather have been sold a life annuity policy with a capital guaranteed period and a return of capital on death.

We asked for a statement from Mr B. He provided copies of the various investment options which were discussed with Mrs A. She was adamant that she wanted to maximise her income. A capital guarantee would have reduced her income stream, although not significantly so. Mr B explained that he happened to be absent on the day Mrs A came in to sign the application form and that the assistant who helped her could not recall why she completed the beneficiary section, other than the forms she filled in were standard ones and that Mrs A must have completed it “as a matter of routine”.

Discussion

This was another of those difficult cases where there was a dispute of fact, exacerbated because only one version could be placed before us, inter alia, as to whether Mrs A was badly advised and truly understood what she agreed to when she signed the application form.

Result

In the result we could not come to a clear conclusion that the probabilities favoured the complainant. We wrote: “The fact that Mrs A did not have financial dependants gives weight to a conclusion that she would have wanted the maximum income and would have been persuaded to purchase a nil guarantee annuity to maximise her income as a concern for financial dependants would not have been a factor. I truly regret that I cannot on the facts on file make a determination in your favour. I realise that it must seem very unfair that the insurer should profit from the untimely death of Mrs A. However, unless there is additional information which would tip the scale in favour of a conclusion that Mrs A could not reasonably have made the choice which was indicated on the application form, I am not able to decide in your favour.”

In the absence of further information the complaint was not upheld.

JP
October 2005

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