CR139
Funeral Insurance – increase of the rate of premiums alternatively the reduction of benefits at the discretion of the insurer.
Facts
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….”
Discussion
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.”
Result
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.
PMN
April 2006
