A final determination by the Ombudsman for Long-term Insurance (Olti) has highlighted why it is essential to bring any unusual policy terms to a consumer’s attention at application stage.
The final determination, one of only five issued by the Olti in 2022, arose from the complainant not understanding the type of cover she was buying from Santam Structured Life.
The complainant’s uncle, who had been in and out of hospital, asked his niece to take out a funeral policy on his life. The complainant purchased what she thought was a funeral policy.
She lodged a claim following her uncle’s death in January 2022, but Santam declined the claim.
During the Olti’s investigation of the complaint, it emerged that the complainant had, in fact, bought an accidental/natural death and hospital cash benefits product.
The Olti said this was not the first time it had received complaints about this product. As in this case, the reason was policyholders’ assumption they had purchased a funeral policy.
It said the product has the following features that lead to this assumption:
- The low premium and sum insured;
- The type of cover – multiple lives can be covered;
- There is a waiting period before cover commences for natural causes, a restriction which is commonly used in funeral policies, not life policies;
- The product is aimed at the lower-income market, which is the usual target market for funeral policies; and
- The manner of marketing – by means of direct selling, sometimes on the street, by “agents” who provide information but are not allowed to give advice.
The ombud scheme’s adjudicators found it was reasonable for the complainant to have assumed she was buying a funeral policy.
Unusual policy term
Santam told the Olti that the deceased had been added to the policy as an “additional dependant” who was living with and financially dependent on the complainant.
However, it came to light at claim stage that the deceased did not reside with the complainant and was not financially dependent on her. Santam said this constituted a misrepresentation or material non-disclosure at application stage, which entitled it to decline the claim and to cancel the policy from inception.
The adjudicators said that where a policy includes an unusual term or condition, the insurer has a duty to draw attention to it.
In their view, financial dependence to qualify as an “additional dependant” was such an unusual term/requirement. Therefore, Santam had a duty to bring it to the complainant’s attention.
Santam relied on the words “permanently residing and financially dependent on you” appearing in small print in the following caption on the application form: “Additional dependant details – permanently residing and financially dependent on you – additional R30 each per month.”
But the adjudicators said the print was too small and did not suffice for the purpose of drawing attention to the unusual term.
Santam objected to the Olti’s provisional ruling, contending the contract wording should be upheld and the assumption the product was a funeral policy had no basis. According to the insurer, the requirement of financial dependence was clear, and without it, there was no insurable interest.
In response, the adjudicators said that even if contractually the insurer was entitled to decline the claim, the benefit should be paid based on equity/fairness.
Santam agreed to admit the claim and paid the benefit of R40 000.
