Three lessons from long-term insurance complaints

Three lessons from long-term insurance complaints show that consumers must read their policies very carefully to ensure that when the time comes to claim, it is paid out without any hassles.

According to the case summaries in the Long-term Insurance Ombud’s annual report that was released this week, long-term insurance can be quite a minefield for consumers.

But these complaints could have been avoided if the consumers involved made sure of what the policies would provide.

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Full disclosure about illnesses

A consumer applied for a policy with the assistance of a financial adviser and the policy was issued after receipt of the application and certain medical tests. However, when the ombud held a final determination hearing, it was found that the correct procedure was not followed.

The adviser stated that he asked the complainant at the outset:

• If he had any chronic illnesses, and that he was only looking for chronic conditions, not acute conditions
• That he understood what is chronic conditions
• The medical questions in a generic fashion

The consumer then signed the application form.

The consumer did suffer from medical conditions before the application that was not disclosed in the application form, but these were not chronic conditions for which he received ongoing treatment.

Given the format of the questions and the fact that the focus was on chronic conditions, the ombud found that the insurer could not prove non-disclosure and found that the application process was fundamentally flawed. The ombud also ordered the policy be reinstated.

The claim process had to be followed and the consumer had to provide any outstanding claim information.

Due to the insurer cancelling the policy, the consumer had stopped paying premiums.

As a goodwill gesture, the insurer agreed to reinstate the policy without the consumer having to pay the arrear premiums.

However, the assessment of the claim showed that the complainant did not, in fact, qualify for a benefit in terms of the policy provisions.

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Loss of income and TERS

Another consumer complained that her insurer rejected a claim for a Mortgage Protection policy because she already received a partial income in the form of a Temporary Employee/Employer Relief Scheme (TERS) payment and therefore did not experience a total loss of income.

The policy provided for a benefit to be paid in the event that the consumer became unemployed or unable to earn an income, but not as a result of disability.

The policy defined being unable to earn an income as not generating any income from an occupation, work, job or business for any reason other than disability.

Based on this definition, the insurer contended that there had to have been a 100% loss of income for a claim to succeed. The consumer did not receive her monthly salary from her employer for two months due to the pandemic but received a benefit from the TERS.

The insurer argued that the benefit payments received from the TERS constituted income earned and the complainant, therefore, did not suffer a 100% loss of income as required by the policy.

The question arose whether the TERS payments constituted income earned “from any occupation, work, job or business for any reason other than disability”.

However, at an adjudicators’ meeting, the panel noted that the policy did not define income or income earned and therefore considered the ordinary meanings and the wording of the TERS Directives, as well as the legal opinions obtained by the insurer and the ombud.

The March TERS Directive does not refer to income earned but instead refers to a benefit or benefits or special benefit, which was significant.

The August TERS Directive distinguished between the TERS benefit and remuneration paid by the employer, with remuneration bearing the same meaning as in the Basic Conditions of Employment Act.

In the Act, the definition of remuneration is any payment in money or in kind, or both in money and in-kind, made or owing to any person in return for that person working for any other person.

The South African Revenue Service also directed in its memorandum to employers that TERS payments must not be reflected on IRP5/IT3(a) certificates.

The panel concluded that:

• The TERS benefit is a benefit created by statute and it is not income earned from any occupation, work, job or business, nor is it remuneration paid to an employee for services rendered
• The source of funds for the TERS benefit is the National Disaster Benefit Fund
• The source of funds for the TERS benefit is not the employer in terms of a contract of employment
• TERS is a benefit paid via the Unemployment Insurance Fund from the funds of the National Disaster Benefit Fund, not from the employer’s coffers
• The employer’s role regarding TERS is, at best, that of a payment agent
• The ordinary meaning of “earned income” and “income earned” in the context of income earned for services rendered/work done, cannot mean passive income from TERS.

Therefore, the meeting held that the TERS benefit did not constitute income earned and therefore could not be considered in the assessment of the claim.

The meeting also agreed that the conclusion reached was in accordance with the principles of fairness and equity as applied by the office. The insurer accepted the ombud’s view and paid the loss of income claim.

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Retrenchment benefit

Another consumer complained about his retrenchment benefit. He was employed at a government department as an independent contractor for a number of years before a time in 2017 when his contract was not renewed due to budget cuts.

He took out a Salary Protection Policy with retrenchment and injury cover only in 2012 with a cover of R75 000 per month at a premium of R1 141. He stated in the sales call that, as he was a contractor, he needed to cover himself if he lost income. The consultant stated later that he did not provide advice, only information.

When the consumer’s contract was not renewed in 2017, he claimed, but his claim was denied.

The man was not happy with the reason that he was not considered a permanent employee and a formal retrenchment process was not followed in the termination of his contract.

Under the heading retrenchment, the policy states that it will provide a monthly pay-out for a maximum of six months, provided the employer followed a formal retrenchment process, the consumer is not self-employed or employed by family and that salary protection insurance must have been in force for at least six months before the retrenchment process started.

The insurer declined the retrenchment claim because the consumer was not permanently employed, the employer did not follow a formal retrenchment process and his contract came to a natural end.

The ombud asked the insurer to consider that a contract that is renewed over several years creates the expectation of contract renewal and points to permanent employment and that one could not hold the insured to the fact that the employer did not follow a formal or legitimate retrenchment process.

The consumer had a several consultations between with his employer before the contract was terminated, but the insurer said the employer confirmed the consumer was an independent contractor and not an employee, his contract came to a natural end and he was paid an hourly rate and there were no deductions for the Unemployment Insurance Fund or employee benefits.

In addition, the consumer said that he could not penalised if there is no information about the reasons for the budget cuts, his contract was renewed over 12 years, he paid PAYE and his contract was extended for only another month which indicates there was a consultation process when the company experienced adverse conditions, while he also worked eight hours a day times the number of workdays per month.

The ombud referred the complaint to an adjudicators’ meeting that considered the policy requirements. The criteria do not include the requirement for the insured to be permanently employed.

The meeting considered the definition of employee in the Labour Relations Act and came to the conclusion that someone is an employee notwithstanding what a contract may be called or the form it takes.

The factual employer/employee relationship brought him within the four corners of the definition of employee and the meeting believed he ought to enjoy the protection the policy affords to an employee in terms of retrenchment.

The meeting concluded that a recommendation be made to the insurer to consider admitting this claim for the retrenchment benefit.