The Short-term Ombud warned policyholders against taking premium holidays when there is too much month at the end of the money.
During tough economic times, cash-strapped consumers are forced to prioritise their monthly expenses to keep their heads above water. Unfortunately, consumers often sacrifice their short-term insurance cover in attempting to save money by not paying premiums during lean financial times.
For many, this is an interim solution with disastrous consequences. Claims are rejected when premiums are unpaid, and consumers suffer the loss of the insured item. In cases where items such as cars or cell phones are financed, the consumer still needs to repay the loan despite the fact that the item is no longer in use, or was written off as a total loss.
Principles that apply to monthly policies:
- If no premium is paid for a specific month, then there is no cover for that month.
- It is the responsibility of the consumer to ensure that there are sufficient funds in his/her bank account to cover the deduction of the premium payment.
- The insurer does not need to notify the consumer of a non-payment of the premium.
- Most policies contain an exclusion against cover if the consumer places a ‘stop payment’ (a request made by a consumer to a financial institution to cancel a payment that has not yet been processed) on the premium. A stop-payment is regarded as a cancellation of the policy by the consumer. In such circumstances, the insurer will not continue debiting the premium in the months that follow.
- Premiums are paid in advance, in other words, in the case of a monthly policy, a premium is paid for a consumer to be covered in the event of a loss or damage for the month ahead.
Period of grace
The Policyholder Protection Rules (‘PPR’) have introduced a safeguard to give consumers who fail to pay a premium another opportunity to pay the premium in order to ensure that the policy continues to provide cover.
Rule 7.5 of the Policyholder Protection Rules provides that:
‘An insurer shall ensure that a policy contains a provision for a period of grace for the payment of premiums of not less than 15 days after the relevant due date: Provided that in the case of a monthly policy, such provision must apply with effect from the second month of the currency of the policy.
In terms of this provision of PPR, in the event of the non-payment of the premium for a specific month, insurers are obliged to have a clause in their policy wording that grants consumers a grace period to pay the premium.
Whilst PPR does not prescribe the actual period of grace that an insurer must give to a consumer, it states that this period may not be less than 15 days. Therefore any policy wording that provides for a grace period of less than 15 days from the agreed premium payment date would be in breach of PPR.
In short, the grace period may be 15 days or more than 15 days after the agreed payment date but it may not be less than 15 days.
Please click here to download the full Ombud media release to share with your clients.
