CR295 Reinstatement of policy [Cross reference from Lapsing; Pre-existing conditions]

CR295
Reinstatement of policy

[Cross reference from Lapsing; Pre-existing conditions]

Policy lapsing due to non-payment of premiums when complainant in hospital for diabetes-related amputation – insurer initially refusing to reinstate, but later exercising its discretion in his favour – parties agreeing that arrear premiums be deducted from the sum assured at time of any claim – insurer waiving reliance on diabetes as pre-existing.

Background

1. The complainant had regularly paid premiums on his life policy for ten years. Towards the end of 2006 he was hospitalised and had one of his legs amputated as a consequence of diabetes. He remained in hospital for a number of months recuperating, and was in that time unable to attend to the payment of his premiums. When he was discharged he found that his policy had lapsed because the premiums had not been paid.

2. The policy provided that “If the policy lapses it may be reinstated upon such terms and conditions as [the insurer] may reasonably choose to impose”. The complainant wanted to pay the arrears and have the policy reinstated but the insurer refused, citing unspecified “internal reinstatement rules”. The insurer also pointed out that even if his policy was reinstated, it would have to be a condition that his diabetes be regarded as pre-existing at the date of reinstatement. The insured felt that this would be unfair to him as he would then have no cover should he later die from any cause related to diabetes.

Discussion

3. We asked the insurer whether it would reconsider reinstating the policy if the complainant was made aware of the exclusion and still wished to retain cover. At the same time we wrote to the complainant to ask whether he would still be prepared to continue with the policy with the exclusion operating, in other words knowing that a claim would only be paid if he died because of an accident or some illness unrelated to diabetes.

4. The insurer replied that, contrary to its earlier communications, it had since decided to make an exception in this instance, on the grounds of the complainant’s excellent payment history prior to the lapsing and the long relationship it had had with him. In the light of the value of the sum assured (R8 500) and the complainant’s age the insurer was also prepared to waive the exclusion of diabetes-related claims.

5. We asked the insurer to clarify whether it would reinstate the policy on payment of arrear premiums, or whether it would redate the policy as if it had begun on the date of reinstatement. We asked, if it agreed, that the insurer provide an endorsement to the effect that diabetes, while pre-existing, was not excluded. In response the insurer offered two options: either the complainant could pay the arrears in the amount of R1 200 (which would leave the sum assured intact); or the arrear premiums could be deducted from the sum assured at the time of any claim. There would be no change to the initial effective date of the policy. The insurer was also prepared to issue an endorsement confirming that after reinstatement it would still be on risk for any claim arising directly or indirectly from diabetes.

Result

6. The complainant advised that he preferred the option where the arrear premiums would be deducted at the time of any claim. The insurer sent the complainant a letter confirming this, and stating that it remained on risk for diabetes. We advised him to keep the letter with his policy, and thanked the insurer for its willingness to assist the complainant.

SM
October 2009

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