Why trust is so important when it comes to life insurance

Trust is very important in life insurance – from premiums to payouts. You must be able to trust that your life insurance will be paid out as agreed, but the life insurer must also be able to trust you and the information you provide.

In unpredictable times, South African families want to know that their financial future is secure and this is why millions take out life and funeral cover to provide comprehensive protection for their loved ones when they need it most, Mpho Mofubetsoana, risk and compliance administrator at MiWayLife, says.

A life policy can, for example, provide peace of mind if the breadwinner passes away. Mofubetsoana says depending on the terms and conditions of the policy, a lump sum payout can potentially cover funeral costs, wipe out debt and ensure you have basics available, such as groceries and school fees.

“Taking out a life policy means entering into a long-term relationship with your insurer, trusting that your family will be cared for. The relationship is underpinned by a legal contract stipulating which benefits, exclusions and payouts you can expect.”

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Most life insurance payouts done without a hitch

He points out that most insurance claims are paid without a hitch, although a few cases make the headlines when clients feel they were treated unfairly. While occasional cases are disputed, the vast majority of claims are paid without hassles, Mofubetsoana says.

“Over the past three years, 75% of direct life insurers paid out on claims and MiWayLife is on a par with industry standards in this regard,” Craig Baker, CEO of MiWayLife, says.

According to the Association for Savings and Investment South Africa (ASISA), the industry paid out claims and benefits totalling R298 billion between December 2023 and June 2024, an increase from the R287 billion paid out in the same period the previous year.

“Where this does not happen, claims are declined for a valid reason, which will be stipulated in the contract itself. This is why it is vital to educate consumers about the technicalities of life insurance policies,” Baker says.

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Why life insurance claims are declined

MiWayLife’s claim statistics from 2022-2024 show that, of 1 862 claims received, 20% were declined. This is why:

• Material non-disclosure of medical information: If you do not share relevant health details during application, the insurer may have to decline the claim. Full transparency allows for an accurate assessment of your risk, which determines policy terms and premiums.
• Natural death within a six-month waiting period: This waiting period is standard practice in the industry, designed to maintain the integrity and sustainability of insurance coverage for all policyholders. It applies to specific claims as outlined in the terms and conditions of policies to protect against fraud or policies taken out if death is imminent (accidental death is usually an exception).
• Before start date: Some claimants submit claims for incidents occurring before the date of policy inception and before receipt of the first premium.
• Missed premiums: According to the policy terms and conditions premiums are collected in advance and cover is provided on a month-to-month basis. Claims were declined in instances where incidents occurred when premiums were not paid.
• Suicide: The suicide waiting period is a standard clause in life insurance policies and claims may be declined if the insured person passes away due to suicide within the specified waiting period, such as 12 or 24 months from the policy start date or reinstatement date. This clause protects against misuse of the policy for financial gain shortly after purchase or reinstatement. It helps to maintain stable premium rates for all policyholders.

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Declined life insurance claims biggest cause of Ombud complaints

Declined claims were the biggest cause of complaints to the insurance ombud across the industry in 2023, accounting for 50% of the total number. In 392 of the cases, policy terms or conditions were not recognised or met and in 86 of the cases claims were declined due to non-disclosure.

Yazeed Adams, executive head of strategy and transformation at MiWayLife, says this scenario can be avoided if you understand the terms and conditions of your policy before signing. “Be transparent about any medical conditions, make sure you are clear about the waiting period and ask about exclusions to avoid potential claim issues.”

Your insurer will always pay out provided your claim is legitimate and your premium payments are up to date, which is how you keep up your end of the bargain. 

Adams notes that 5% of MiWayLife claims were repudiated due to material non-disclosure (86 cases) or outright fraud (4 cases), but he notes that the vast majority of policyholders are trustworthy.

“Our clients rely on us to fulfil our contractual obligations in the future, sometimes decades later and therefore it is fair to say that trust is at the heart of the relationship between insurer and insured. Life insurance is closely tied to family wellbeing and security, which is why both parties should act in good faith and honour this deeply personal commitment.

“It is not worth putting your family at risk by not adhering to the rules on purpose or not.” 

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How fraud affects life insurance policy holders

Fraud affects policyholders and according to ASISA it is an unfortunate ‘sign of the times’ that fraud is on the increase. South African life insurance investment companies found 13 074 cases of fraud and dishonesty in 2023, an increase of 46% from the previous year, when 8 931 cases were detected.

The R175.9 million cost to the industry is significant, but insurers have dedicated forensic departments that are getting better at identifying criminal trends and nipping fraud in the bud.

Adams says this is important as fraud affects everyone in the value chain. “Fraudulent claims cost insurers significant amounts of money, which is often passed on to honest policyholders in the form of higher premiums.

“The more frequent or costly the fraud, the greater the financial burden on policyholders.”

Fraud ultimately erodes the trust insurers and policyholders rely on to do business and undermines the social safety net, making it less effective for individuals and families who genuinely depend on it for support at critical times, Baker says.

“We can all play a part in combating fraud to keep premiums fair, ensure swift payouts and maintain the integrity of the entire industry.”