The annual report of the Ombudsman for Long Term Insurance is full of interesting tips for life assurance policyholders. Judge Peet Nienaber's advice applies to both investment (endowment) and risk (against death and disability) policies.
Policyholders often complain to the ombudsman and to Personal Finance about the non-payment of interest for the period between when a benefit payment falls due and when a life assurance company actually makes the payment.
In response to a request from the ombudsman's office, the Life Offices' Association, which represents most life assurance companies in South Africa, has drawn up guidelines for the industry on how much interest is payable to policyholders and when it is payable. The guidelines deal mainly with the payment of interest where mora interest is not involved.
According to Jennifer Preiss, the deputy ombudsman, mora interest is a legal entitlement to interest (currently 15.5 percent) and applies mainly to investment life assurance policies (endowment policies) where a date for payment has been pre-determined.
For instance, Preiss says that if you have completed your benefit/maturity forms in terms of your endowment policy contract and submitted them on time, you are entitled to mora interest from the day of maturity.
However, this is not the case when it comes to risk assurance, where mora interest normally does not apply.
Life assurance companies are not legally obliged to pay interest on delayed death and disability claims. For this reason, some life companies have delayed the payment of benefits, for any number of reasons. As a result, you do not get the use of your money, while a life assurance company can earn substantial interest for itself on the unpaid or disputed benefits.
The office of the ombudsman does not have to rely entirely on the law when making rulings; it can make decisions on the basis of equity. And when the strict application of the law would lead to a manifestly unfair result, the ombudsman's office can put pressure on the life assurance industry to act fairly, even though there is no legal requirement for the industry to do so.
Nienaber says life assurance companies are liable to pay interest when the person claiming the benefit has submitted proof of entitlement and the life assurer, having had a reasonable period to consider the claim, has delayed payment.
The question is: What would be a reasonable period for a life assurer to consider a claim?
As a result of the ombudsman's intervention, it has been agreed by the industry that, as a rule of thumb, a period of 60 days will apply for death claims and 120 days for disability claims before interest will become payable.
The rate of interest that will be paid after the period elapses is the rate offered by Standard Bank for term deposits of 12 months, unless the life assurer can show "that this rate is in excess of the value of the benefit" the assurer itself received while withholding payment.
Preiss says that if, however, you feel that a life assurer has been unreasonable in taking the 60 or 120 days to decide on a claim, you can still lay a complaint with the ombudsman and, if it is justified, the ombudsman may rule in your favour.
*****
In his latest report, Judge Nienaber also raises the issue of his jurisdiction to intervene on your behalf being circumscribed by the new Financial Services Ombudsman Schemes Act.
In terms of the Act, the office of the Ombudsman for Long Term Insurance will not be able to deal with any financial advice-related complaints relating to issues that occurred after October last year, when Charles Pillai, the Ombud for Financial Services Providers, took office.
All advice-related complaints can from now on only be adjudicated by Pillai.
Email: info@ombud.co.za
Telephone: 021 657 5000 or 0860 010 3236
Fax: 021 674 0951
Email: reception@faisombud.co.za
Telephone: 012 470 9080
Fax: 012 348 3447