CR163 Premiums – insurer waived premiums for two years
Premiums – insurer waived premiums for two years – non activation by the insurer of debit order thereafter – insurer purported to cancel the policy and refused reinstatement
The complainant took out an insurance policy in 1999. In 2001 he was diagnosed with nephritis and lodged a disability claim against the policy. The insurer advised the complainant that he did not qualify for the payment of the trauma benefit, but that the waiver of premium benefit would be activated. In terms of the contract, this benefit provided for the premiums to be waived should the insured be unable to perform his occupation for 24 months, following an initial six months waiting period. The complainant’s claim under the benefit was approved for the period from 1 September 2001 until 31 August 2003. The insurer explained to the complainant that his policy would remain in force for that period with the insurer paying the premiums on the complainant’s behalf. The insurer instructed the complainant that he must resume payment of premiums from 1 September 2003.
During November 2003, already in arrears, the complainant forwarded to the insurer a debit order for payment of premiums on the policy and on 10 December 2003, the insurer confirmed receipt of the correspondence from the complainant. The insurer further confirmed that the debit order for the monthly premium had been activated to operate on the complainant’s bank account with the first deduction commencing on 25 December 2003. In the same letter the insurer advised the complainant that the policy had become automatically paid up (because of the late payment of premiums owing) but that he had a period of grace of one year to reinstate the policy. The insurer further advised that since the complainant had been prompt in his application, the insurer was prepared to consider reviving the policy on receipt of the payment of arrears in the amount of R1133.58 to cover premiums up to 31 December 2003.
The arrears were not paid but the insured believed that premiums were being deducted from his bank account. Sometime thereafter he realised that it was not happening and in March 2004 he requested his consultant to enquire from the insurer why the premiums had not yet been deducted. The insurer responded by requesting a payment of R1346 and also insisted that the complainant should complete certain prescribed medical forms and to go for an HIV test. The money was paid and the test was done yet the insurer advised the complainant that the policy had been declined on medical grounds. The insured did not accept this response and on 29 November 2004 the consultant requested the insurer to revive the policy. The insurer responded on 2 December 2004 as follows:-
“The waiver of premium was only effective until 31 August 2003. The debit order application form was received on 19 November 2003 and was implemented to deduct as from 25 November 2003. However, the debit order application form was received too late in order to implement the debit order for 25 November 2003 and was then implemented as from 25 December 2003.”
Due to non payment of premiums, your policy was automatically converted to a paid up assurance on 1 July 2003. Once a policy has ceased, we allow our clients a grace period of one year to reinstate the policy. However, we are prepared to consider reinstating your policy on receipt of:-
• completion of the attached application for reinstatement;
• the amount of R1705.30 (premium update excluded) or R1884.70 (premium update included), which represents arrears for the period ending 31 December 2004;
• regular payments of at least R194.30 per month.
These requirements should reach us on or before 31 December 2004. Failure to comply with the above conditions by this date will result in the request being automatically declined…”
The complainant took the necessary action and so advised the insurer on 20 December 2004. On 23 December 2004, however, the insurer advised the complainant that the application for revival had been declined for medical reasons. The insurer further advised the complainant that his policy had been “off our books for longer than one year and cannot be reinstated at this late stage….”. The insurer then requested the complainant to furnish his bank details in order that the insurer could refund the complainant’s overpayments.
The complainant referred the matter to our office for assistance.
We requested further details from the insurer. We were advised that when it had requested the complainant to make payment of the amount of R1133.54 on 10 December 2003, the complainant was already in arrears with premiums for September, October, November and December 2003. The insurer alleged that it received the payment called for only on 9 March 2004 when the policy was already 7 months in arrears. Relying on the insurer’s own internal ruling that medical evidence was needed when payments were in arrears for longer than 6 months, the matter had been referred to the insurer’s underwriters as well as its own Chief Medical Officer and the application for reinstatement of the policy was thereupon declined for medical reasons.
We suggested that the insurer reconsider the matter, as they informed the client in their letter of 13 December 2003 that they “allow our (their) clients a grace period of one year to reinstate the policy”, subject to the payment of all arrears. No mention was made of any medical requirements or that the reinstatement would be subject to underwriting.
The insurer advised that the policy had been declined due to medical requirements and not due to the late payments of arrears premiums. The assurer referred to its internal ruling which states:-
“Policies with life cover and benefits with cover can be reinstated without requirements, within 6 months of last premium due date/cancellation (as no underwriting is required) unless:
• The policy has trauma benefits, or
• The policy has hospital care benefits or
• The policy is reassured or
• The policy is health loaded or has (LOA) history or
• The cover exceeds R500 000…”
Since the complainant’s policy had a trauma benefit and having taken into account the client’s request for reinstatement, it had been declined for medical reasons. The insurer, however, was prepared to reinstate the policy, but all cover and benefits were to be removed. The complainant was given until 1 July 2005 to advise the insurer if he was prepared to accept this offer. We enquired from the insurer what was meant by “All cover and benefits will be removed”. We again pointed out to the insurer that in its letter dated 10 December 2003 to the complainant, the insurer had given to the complainant 12 months within which to pay the arrear premiums and no mention had been made of a 6 month period. It appears that the internal ruling of the insurer had come into operation during 2004 and if the complainant’s application had been denied, the insurer had applied this internal ruling retrospectively.
The insurer offered to reinstate the policy with all the applicable benefits to what it was before it lapsed provided that the outstanding premiums amounting to R2429.02 were paid before 31 October 2005. We suggested to the complainant that he accept this offer, which he duly did.