CR389 Compulsory life annuity; commutation of monthly income payments
Compulsory life annuity; commutation of monthly income payments
Compulsory life annuity – beneficiaries seeking lump sum payment instead of monthly income payments after death of annuitant before guarantee date – insurer stating that policy could not be commuted – whether there was any legislative or contractual impediment to payment of lump sum
1. The complainant lodged a complaint on behalf of himself and his three siblings. Their mother had been the annuitant on a compulsory guaranteed income annuity policy, and they were the beneficiaries. After the annuitant’s death, the insurer commenced paying the monthly income to the beneficiaries. They each received about R110 per month, and this was set to continue for the next sixteen years, until the guarantee date. The beneficiaries felt that this “makes no sense” and they wanted the insurer to pay each of them a commuted lump sum instead.
2. The insurer stated that “the annuity cannot be commuted and we are unable to pay the full lump sum due to the restrictions on this type of policy”.
3. The insurer quoted a clause in the policy summary which stated:
“If the annuitant dies before the guarantee date, the annuity will be paid to the nominated beneficiaries until the guarantee date, after which the annuity will end”.
4. The insurer also stated that there were other restrictions indicated on the policy document. The insurer referred to a clause, also in the policy summary, which read:
This annuity cannot be surrendered, commuted, ceded or pledged.”
5. We pointed out firstly that there was no legislative impediment which prevented the benefit being paid as a lump sum, after the death of an annuitant (who dies before the expiry of the guarantee term).
6. We asked the insurer to provide us with a full copy of the actual policy terms and conditions, not just the policy summary. The policy terms and conditions would apply if there were any discrepancies between it and the policy summary.
7. The clauses in the actual policy terms and conditions were not the same as in the policy summary on which the insurer was relying.
8. The policy simply stated, under “Beneficiary”:
“The Annuitant may at any time appoint a beneficiary to receive any proceeds that might be due on death of the Annuitant/s if death occurs before the Guarantee Date”,
9. We pointed out that this did not appear to preclude payment of the proceeds in the form of a commuted lump sum (which would of course be subject to tax).
10. The policy further stated, under “Cession”:
“The Annuitants right to benefit in terms of this policy shall not be capable of surrender, commutation or assignment or of being pledged as security for any loan”.
11. We pointed out that this applies to the Annuitant, stipulated in the policy by name; it does not apply to beneficiaries.
12. We mentioned to the insurer that in our experience if the contract did not prohibit the payment of a commuted lump sum, other insurers were prepared to offer a discounted lump sum instead of the annuity. We asked the insurer to reconsider the matter.
13. The insurer agreed to pay each of the beneficiaries a commuted lump sum.