Understand the Policy restrictions, say Long-Term Insurance Ombudsman

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The ombudsman for long-term insurance mediates in disputes between subscribing members of the long-term insurance industry and policyholders regarding insurance contracts. It is an independent office which is accountable to an independent Long-term Ombudsman Council for providing an efficient and independent service to policyholders and others in response to disputes arising from long-term insurance policies. 

In the press release below, Ombudsman for Long-Term Insurance Judge Ron McLaren discusses the importance of knowing about policy restrictions and pre-existing condition clause.

It is crucial for purchasers of insurance cover to familiarise themselves with the policy restrictions, the Ombudsman for Long-Term Insurance Judge Ron McLaren has said.

He said the majority of complaints received by his office related to the rejection of claims due to death during the waiting period and claims being refuted due to a pre-existing condition.

“It appears from these complaints that the complainants were often unaware of the policy restrictions applicable to the cover. It is important for an applicant for a policy to know exactly what the policy will cover.

“If a consumer does not know what exactly is covered and what is excluded, expectations are raised which are not fulfilled. This can leave a claimant in a financially precarious situation and can also cause distress after a claim is rejected,” said Judge McLaren.

He also cautioned that when a policy is sold over the telephone, the applicant must concentrate throughout the telesale and ask questions when something is unclear.

Most funeral policies have a waiting period during which the life insured is covered only for accidental death. Even if the life insured dies one day before the end of the waiting period from natural causes, the policy benefit will not be payable.

It is important for the policyholder to understand when the waiting period will end. It could be at the end of a defined period such as at the end of the six months, or it could be after a defined period and the payment of a certain number of premiums. The waiting period usually also applies after a policy is reinstated after it had lapsed.

A complaint that came before the Ombudsman concerned the death of a policyholder during the waiting period.

The insured took out a policy covering his own life as well as the lives of certain members of his family.

The premium payer was not the policyholder himself but the complainant, who was also the nominated beneficiary. He paid the premiums via a deduction on his salary.

Premiums had to be paid monthly in advance. Provision was made for a 15-day period of grace for late payment of the premium before it would lapse.

The conditions of the policy provided that upon a reinstatement of the policy a fresh waiting period of six months would apply.

The premium fell into arrears in March after the premium payer instructed his employer to cease deductions from his salary with the result that the policy lapsed. In the same month the premium payer sent a letter to the insurer requesting cancellation of the policy because of his financial problems.

The premium payer’s employer nevertheless continued to forward premiums to the insurer from April onwards which were retained by the insurer with the result that the policy was reinstated. Nevertheless, a fresh waiting period of six months came into operation.

The policyholder died during the new waiting period. The complainant assumed that the insurer did not respond to his letter of cancellation and that the policy was, therefore, still intact.

Judge McLaren said it was quite clear that because the insured died within the new waiting period, the death claim could not be upheld.

He said it was also pointed out to the complainant that a premium payer had no right to cancel the policy because he was not the owner of the policy. The insurer nevertheless returned premiums paid after March.

It is also vital for policyholders to understand the pre-existing condition clause.

Life policies issued after no medical underwriting or after limited underwriting often have a pre-existing exclusion clause inserted, either for a determined period, or for the entire term of the policy. If a claim event happens and it has been caused by the pre-existing condition during the applicable period, no claim will be payable.

The scope of the wording of the pre-existing exclusion clause can determine whether the exclusion applies to events which are only directly caused by the pre-existing condition or, claim events caused both directly and indirectly by the pre-existing condition and where the pre-existing condition is a contributory cause.

A recent complaint arose out of a life policy which also covered hospital expenses. The policy contained a pre-existing condition exclusion clause.

The complainant stood on a rusty nail on 27 January, the wound developed sepsis, and he was admitted to hospital on 30 January. On 11 February his right lower leg was amputated below the knee. His claim for the hospital expenses was rejected by the insurer on the basis of the exclusion clause.

The relevant portions of the clause provided that: “Hospitalisation as a consequence of pre-existing conditions as defined herein…will not be covered. ” For this purpose, it defined “a pre-existing condition” as: “Sickness …contracted by an insured person …which existed prior to the initial commencement date of (the) policy”.

It was not in dispute that the complainant had been a diabetic for 16 years, since before he took out the policy. In relying on the exclusion clause, the insurer’s contention was that for its purposes, his diabetes as a pre-existing condition had been the cause of his hospitalisation.

Judge McLaren said vital to the solution of the dispute was that the pre-existing condition exclusion clause did not require that the condition must be “a direct or indirect” cause, as some such clauses are worded.

“On the contrary, its wording required only that the claim event must be ‘as a consequence’ of the pre-existing condition for the exclusion to apply, which meant that the pre-existing condition would have had to be the main cause, sometimes called the dominant, or proximate, or actual or effective cause, and not simply a lesser contributory cause.

“In the insurer’s email to our office it was stated that ‘the cause of hospitalisation was due to sepsis’, and that the complainant’s diabetes was a ‘contributing factor’ to the sepsis. Both of these statements were of course correct, but the submission that followed was that his standing on a nail had not been the direct cause of his admission to hospital.

“The office’s unanimous view was, however, that the diabetes had not been the proximate cause of the hospitalisation,” said Judge McLaren.

In the Certificate of Medical Attendant that accompanied the claim, the doctor concerned said, in response to the question “Direct cause of hospitalisation?” that it was “Right foot sepsis after standing on a rusted nail”, and in answer to the further question “What are the contributing factors that led to hospitalisation?” he mentioned diabetes and hypertension.

Judge McLaren said those two answers alone made the matter clear – it was the sepsis (after standing on the nail) that was the direct cause of the hospitalisation, and the diabetes was only a contributing cause.

“The main cause was, therefore, not the complainant’s diabetes. On the contrary, it is clear that had he not stood on the rusty nail, and had he not thereafter developed the sepsis, there would have been no question of hospitalisation.”

In these circumstances the clause did not serve to exclude the insurer’s liability.

The insurer accepted the Ombudsman’s preliminary determination.

For more information visit www.ombud.co.za. Sharecall number 086 010 3236.

 

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