CR138 Funeral policy – Section 53 of the Long-term Insurance Act No 52 of 1998
Funeral policy – Section 53 of the Long-term Insurance Act No 52 of 1998
The main member under a funeral policy submitted a claim under her policy on the death of an extended family member. She complained to the office that the insurer paid a claim amount of R950 instead of R2 500.
The funeral administrator on behalf of the insurer responded that while cover for the main member amounted to R2 500 it was R1 700 for extended family members. However, as the member did not have a cash benefit, the administrator advanced that it “complied with Section 53 of The Long Term Insurance Act and amount of R950,00 was paid to member being the amount it would have cost to supply the service”.
Section 53 of the Act reads as follows:
“53. Notwithstanding the terms of an assistance policy, either party thereto may request that a policy benefit which is expressed otherwise than in a sum of money shall be provided as a sum of money equal in value to the cost that would have been incurred by the long-term insurer had the non-monetary benefit been provided”.
The policy schedule and a claim sheet confirmed the cover for the deceased as R1 700.
In the light of the contractual documentation provided, the administrator was informed that it was obliged to consider a claim in the amount of R1 700 as Section 53 deals with policy benefits which are expressed otherwise than in monetary terms. We requested an explanation as to the relevance of Section 53.
The administrator in response submitted a legal opinion in the possession of the Financial Services Board which stated:
“4. What is quantified by section 53, is a non-monetary policy benefit; i.e. goods or services to be provided for. This supposes that the policy contract stipulates for one or more goods or services to be provided for on the happening of a specified event(s).
5. A funeral policy for instance may be drafted so as to provide either a stated or determinable quantity of cover on the death of the beneficiary to be used solely towards his/her funeral. This is a simple policy …
6. If a simple policy is limited to R3 000,00, then that is what the beneficiary must get because that is the deal that is struck and section 53 is irrelevant since the section (a) does not apply where monetary or cash benefits are stipulated or are stated to be determinable (if there is a formula, then the benefit is monetary) and (b) does not intend so absurd a result so as to make a contract different than the one which is struck. The insurer cannot, for example, make a contract to pay out R3 000,00 on the death of X towards ‘X’s’ funeral and then turn around, when X dies and say, that he could have provided the funeral for R1 500,00. This type of contract is not the same as one which uses a label to describe a particular type of ‘package’ even if the label, as in Consultant’s case is expressed in money. Unless the contract states on a proper interpretation that it will pay that money (in which case section 53 is irrelevant) then there is no ‘cash value’ to the benefit, the policy being a funeral of ‘type’ X for the premium of Y”.
The office informed the administrator that the opinion did not support the administrator’s view and that the insurer was obliged to pay the claim amount of R1 700.
Confirmation of payment of the difference of R750,00 was received from the insurer.