CR341 Lapsing Life assured not having paid a premium for the month in which he died
Life assured not having paid a premium for the month in which he died – 30 day grace period running during that month – was the insurer’s decision to decline the claim justified?
1. The deceased had by telesale purchased life cover under a policy which commenced on 1 May 2007 and which provided that premiums were payable monthly in advance. It further stipulated that the policy will be cancelled if a premium payment is not made within 30 days after the agreed payment date and that it would then provide no further benefits.
2. The deceased passed away on 12 December 2009. The premium for December had not yet been paid, but it was within the 30 day grace period that he died. When the complainant lodged a death claim against the insurer, it was declined on the basis that the deceased had no cover during the month of December. In doing so, the insurer cited the following clauses as the basis for their decision:
“Contract of Insurance
In return for your payment and our receipt and acceptance of your premium we will provide insurance cover according to the terms of your policy during the period shown in your schedule.
Premiums are payable monthly in advance by debit order and are payable for as long as the premium paying terms section of your policy states.
The contract will be cancelled on our side, if any of the following happens:
• you fail to pay your premium within the 30 days after the agreed payment date. If the premium is not paid in full within these 30 days, the policy will end, and we will provide no further benefits.
Note that (the insurer) will only accept a claim if:
• the definitions and requirements of the insured event have been met
• we rule that the claim is valid
• we have received and accepted all the information required
• the premiums for the policy have been paid in full
• the contract has not been cancelled.”
3. The insurer accepted that it was within the 30 day grace period that the life assured died, and stated that in such a case the policy would not be cancelled but that the claim will not be accepted. The complainant, aggrieved about the insurer’s decision, approached our office contending that the benefit amount should be paid.
4. We noted that the provisions of this policy provided for a grace period of 30 days in respect of each premium payment due. On the facts of the case there was no dispute that the insured event had occurred during the period of grace. As such the legal position suggests that the benefit is payable subject to the payment of the arrear premium by the life assured. The insurer was referred to an extract from the book by PM Nienaber and MFN Reinecke entitled “LIFE INSURANCE IN SOUTH AFRICA” which states:
“The grace period in effect extends the time for payment. A payment of the arrears made during that time will accordingly be a payment made in time. The policy remains “in force”. Should the insured event occur during the extended period, the benefit will be payable by the insurer, but only against tender of the arrear premium by the insured.”
5. In light of the above, the insurer was requested to review their decision but they declined to do so. Following this the matter was discussed at a meeting of adjudicators where it was decided that the insurer should furnish a copy of the sales recording in order to ascertain whether the provisions of the policy which they sought to rely on in order to escape liability had clearly been explained to the life assured at the point of sale.
6. The recording disclosed that the life assured had not been advised about the aforesaid provisions. It was noted that the cancellation clause gave the life assured a period of 30 days in which to pay the arrears in respect of each premium due. The clause in question specifically stated that if the premium is not paid in full within the said period, the policy will be cancelled, and will provide no further benefits, but it was silent on what would happen if the insured event occurred within that period. We reiterated to the insurer that the general rule is that if the insured event occurs during the period of grace, the benefit is payable against the tender of arrear premiums by the life assured. As the insurer had failed to explain to the life assured either in writing or orally that no benefit would be payable during the period of grace, we suggested that they should honour the claim and pay the benefit accordingly.
7. The insurer agreed with our view and settled the claim.