Funeral Insurance - Unexpected Consequences

I have just read a very interesting piece in the Insurance and Savings Ombudsman's (ISO) newsletter to participants in the scheme.  (The ISO provides an external complaints resolution service to insurance companies, insurance brokers and financial advisers).

In this case, the complainant had purchased a "Funeral Plan" of the type advertised on TV and generally featuring a celebrity whose mana is used to give the plan some credibility.

It seems that what is not disclosed is the rate at which premiums increase as the insured person gets older.  The brochure provided to the complainant showed premiums that would be payable up to age 75, but not beyond.  It transpires that premiums increase steeply after age 75, to the point that the complainant found it impossible to continue to pay.  Further, it is entirely possible that the premiums paid would have exceeded the benefit payable on death - a fact never communicated to the complainant.

The ISO found that the insurer "had a duty to specifically ensure that its insureds were made aware the premiums for the policy continued until the age of 90, increased quite substantially past the age of 75 (the oldest age noted on the brochure) and would probably exceed the insured benefit."  They also "did not believe the policy was marketed fairly and, consequently, on a fair and reasonable basis, asked the insurer to refund the total premiums the complainant had paid."

The insurer offered to hold the policy at its current level (i.e. no future CPI increases in cover) and to waive all future premiums.  The complainant accepted this offer and the case was settled.

We consider that this was an excellent decision and outcome for the complainant.  The marketing used to sell this type of insurance, i.e. TV featuring celebrities, can be deceiving and this is a classic case!

It is interesting to note that this type of insurance is not offered by life and health insurance brokers or financial advisers - it is only sold directly by the insurer, and usually promoted by TV and other direct advertising media.  The brokers and advisers that I know, would never have any part of such policies!

Note:  The ISO decisions are published on their website, but this one is so new that it isn't up yet.  I will include a link when it is published.

Exclusions in Life Insurance Policies

I often get asked about exclusions - i.e. what don't they pay on.

In the Life Insurance cover world, the common expectation is that suicide is excluded - and that is partly true.  Mainstream Life Insurance companies generally exclude suicide in the first 13 months of the policy - thereafter they will pay a claim for suicide.  The reasoning being that if you're intent on ending your own life, you're unlikely to wait 13 months.

The other condition that could cause the insurer to deny a claim is if you haven't been 100% truthful when completing the application form.  If you don't tell the whole truth, the insurer may be within its rights to deny the claim.  There are some complex rules around this that are beyond the scope of this blog.

For most mainstream life insurers, (i.e. those for which life insurance is their main business), these are the only exclusions contained in their policies, however, for insurers owned by banks, there is often another exclusion that could be disastrous. They often contain an exclusion along these lines:

"No benefit will be paid if the death is caused by war, invasion, act of foreign enemy, hostilities (whether war is declared on not), civil war, military or usurped power, rebellion, revolution, insurrection riot or civil commotion."

Now that doesn't seem too bad, but consider these possibilities:

*   In 1999, a lady was tragically killed on a picket line on the wharf at Lyttelton wharf.  Could a strike/picket line be called a "civil commotion"?

*   Last year, my brother went to Western Samoa for a holiday, to find roads blocked as there was a problem ahead with locals indiscriminately using firearms.  If he'd been accidentally shot, could his death be said to have been "caused by rebellion, revolution, insurrection riot or civil commotion."

*   If you had been visiting Fiji at the time of any one of the coups d'etat, and inadvertently been shot to death,  I suggest that you certainly would not be covered by many of the bank life insurance policies.

*   In 1981, during the protests at the Springbok tour, there were many ugly situations that could have resulted in a death.  These could easily have been labelled as a riot or civil commotion, and the bank insurer would have denied any resulting death claim.

So, I guess that the message is:  when buying life insurance (and any other insurance), make sure that the small print doesn't contain any nasties such as these.  It's too late to find out at claim time.

Dirty Tricks in Bank Income Protection Insurance

I have just heard a horror story about a bank/insurer and their Income Protection insurance.  Customer has a policy that pays a benefit if he is temporarily totally unable to work.  He had an accident and was off work.  The bank/insurer started paying the claim.\

Unfortunately, while disabled, he fell and damaged another limb (shoulder) and was told by the doctor that he shouldn't work as a result of this accident.

Bank/insurer stops paying him after the first injury is recovered and refuses to pay for the second claim, even though he can't work.  They claim that he was not covered for the second injury because he wasn't working when the injury occurred.

Nonsense!  There is nothing in the policy wording - I have checked it carefully - that would allow the bank/insurer to decline the second claim!  I think that it is just an over-zealous clerk reading more into the words of the policy than are there.

My advice:  Get a Letter of Deadlock from the bank/insurer and refer the matter to the Insurance and Savings Ombudsman