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.

April 2006

CR139 Funeral Insurance

Funeral Insurance – increase of the rate of premiums alternatively the reduction of benefits at the discretion of the insurer.


The policyholder, a domestic worker, complained to us with the help of her employer that the premiums under her funeral policy were being increased year by year to a point where she could no longer afford them. She was covered as a principal member. So too were her child and an extended family member. The child, when no longer qualifying as such, was added as an extended family member.

The policy conditions made provision for a revision of the premium rate “by the actuary of the company to bring the rates in line with the actual claims experience. As an alternative to an increase in the premium rate, the Company may at its sole discretion, decrease the benefits payable on this policy.”

The complainant’s employer complained to us that: “The Advisors should have struck a reasonable charge before selling the product to the public. The participators like [the complainant] cannot be responsible to finance the mistake made when the original product was put on the market. One buys an insurance policy because it sounds so good, only R30 for all that, not to find your premiums just keeps going up. Can there be legislation to prevent this happening?”

The insurer responded stating, inter alia, “In regard to reducing the benefits as well as the premiums, our comments are as follows: this is a packaged product and therefore can’t be reduced, however the extended family members, do not form part of this package and their cover can be reduced from R8 000.00….”


We added, in responding to the complainant:

“Broadly speaking funeral insurance covers an insured only for as long as he or she pays the premiums. If an insured is no longer able to afford the premiums he/she can simply discontinue paying premiums. An insured is not liable to be sued for arrear premiums. But of course if payment ceases so does the cover. That is a decision each insured must take for himself or herself. The policy in this case entitles the insurer to increase the premiums from time to time. The insurer can accordingly not be censured for doing so. The insured must decide whether she wishes to continue with the existing cover or shop around for an alternative. It is her decision.

As far as a proportionate reduction of benefits are concerned, we refer to the last paragraph of the insurer’s enclosed letter.

Please let us know if you would like us to pursue this issue with the insurer on the basis of reducing liability (and accordingly the premiums) but only for extended family members.”


The employer replied as follows: “Thanks to you we have finally received a letter from [the insurer] and have decided to cancel both policies for the extended members because we discovered that she was paying more for each of them than for herself. It does help to understand what is happening when it is down in writing. Thank you so much.”

I am so grateful to you for helping us sort out this problem.”

The file was closed.

April 2006

CR141 Fraud – quite probable – but claim paid


Fraud – quite probable – but claim paid


Medical evidence which was featureless, and which included a negative HIV test, was supplied at the time the application for life cover was submitted. The proposer was accepted at tabular rates and the contract was effected. Eight months after the commencement date the life assured died of cryptococcal meningitis with a positive HIV test, a CD4 count of 36 and viral load 110 000.

It is extremely unlikely, very rare indeed, that HIV infection would have been contracted after the inception date of the insurance and progress to full blown AIDS syndrome and death within eight months.

Understandably the life assurance company viewed the claim with suspicion and because of their feeling of unease they attempted, but without success, to obtain further evidence relating to the life assured’s medical status at the time the contract was effected.


Whilst the Ombudsman fully appreciated the insurer’s reasons for seeking further medical information in order to determine the sustainability of the claim it was pointed out to the insurer that these investigations must be undertaken within a reasonable timeframe. A decision regarding liability could not be deferred indefinitely. Fifteen months after the date of death we informed the insurer that they had to reach a decision.

This is a case where the likelihood of fraud was very real. One has to question the validity, or accuracy, of the initial HIV test and also question whether there were symptoms of AIDS sickness – and possibly treatment – prior to the policy being effected. However, the burden of proof is on the insurer and as investigations over a lengthy period failed to produce any concrete evidence the insurer admitted liability.


The claim was settled in the complainant’s favour.

April 2006