R39 billion worth of death claims paid out by life insurers

Life insurers in South Africa paid out claims to beneficiaries of 892 817 policies, representing a payout rate of 95.9% in 2023. The claims payout rate for 2022 was 94.3%, and 96.2% for 2021.

The 2023 annual death claims statistics released by the Association for Savings and Investment South Africa (ASISA) show life insurers processed 931 025 claims against individual life, credit life, funeral and universal life policies.

38 208 claims were declined in the same period due to dishonesty, fraud, or contractual exclusions like suicide within the first two years from when the policy was taken out.

Reasons why most claims were declined

Gareth Friedlander, a member of the ASISA Life and Risk Board Committee says life insurers were established to provide consumers with the option of insuring themselves and their loved ones against the financial impact of an event like death, disability, or critical illness.

“Policyholders and their beneficiaries should be able to trust that their policies will pay when a life-changing event occurs.” However, death claims are usually declined because of different reasons.

A claim can be declined because the policyholder did not disclose material information about a medical condition or lifestyle when applying for the policy to secure cover and/or lower premiums.

Another reason is when a fraudulent claim is submitted, or the beneficiary is involved in a crime that resulted in the death of the policyholder.

He says all policies, whether life or funeral, come with an exclusion that states that no benefit will be paid to a beneficiary who committed a crime resulting in a policyholder’s death.

Some life insurers will not pay if the policyholder committed suicide, generally within the first two years of taking out the policy.

An exclusion is also a common reason why life insurers decline claims. “If the policyholder died from an excluded health condition or dangerous lifestyle activity. The policyholder would have been informed of this exclusion when entering into the contract.”

Funeral cover generally imposes a waiting period of six months for deaths due to natural causes.

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Life insurance and universal policies

Friedlander says it is important to disclose all the necessary material to ensure life insurance or universal life policy claim is not declined. Because they offer life cover worth millions of rands, they generally require some information which can range from medical and lifestyle questions.

“The law compels life cover applicants to honestly disclose all information likely to influence the insurer’s judgment when determining appropriate policy terms and premiums.”

All the medical examination ensures that every person pays a fair premium without unduly subsidising someone less healthy.

Withholding material information from a life insurer during the underwriting process is dishonest, and a life insurance company, within its rights can decline to pay out a claim.

Therefore declare a policy void should it come to light that you were dishonest or that you failed to disclose important details when you took out your policy.

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Funeral insurance policies

He outlines the main reasons for declining claims against funeral policies are waiting periods, fraud and unpaid premiums. Funeral insurance policies’ focus is to pay out claims quickly and without hassle.

Funeral insurers do not typically require blood tests and medical examinations. “Since there are no underwriting requirements for funeral insurance, it is often tempting for people to buy funeral cover only once they have developed a serious illness and are expecting to die as a result.”

Credit life policies

Claims against credit life policies are mostly declined because the cover lapsed due to non-payment of premiums or the outstanding loan balance had been settled. He says the payout by a credit life insurance policy decreases as the outstanding loan amount decreases.

“Once your debt has been repaid, your cover ends. When you default on your loan repayments, no premiums are paid to the life insurer and your cover lapses. It is important, therefore, that you have stand-alone life and disability cover, which is not linked to debt.”

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