Insurance lessons from the ombuds

Are you sure about when you can claim a disability benefit, how to change a beneficiary on a life insurance policy or for whose death you can claim funeral benefits?

We often don’t read, or understand, all the terms and conditions of our policies, so when it comes to claiming, we are sometimes surprised by the outcome.

Complaints that come before the ombuds, however, can teach us valuable lessons about what to look out for in our own cover.

1. Being boarded does not assure you a disability benefit

If your employer decides you are medically unfit to work for them, you should not assume your disability policy will pay out – it will only do so if you meet the policy definition of disability.

The National Financial Ombud (NFO) reports in a recent release that it has received a number of complaints from employees who were unable to claim on disability policies after being boarded by an employer or dismissed for incapacity.

Employees and employers alike wrongly assume that because a medical professional has written a report stating that an employee is unfit for work, they automatically qualify for disability insurance, the NFO’s lead ombud in the life insurance division, Denise Gabriels, warned recently.

Gabriels says medical reports provide crucial evidence about the nature and extent of your disability and your ability to perform the duties of your own occupation or your own or similar occupation.

However, your employer’s policy on when you can be medically boarded could well differ from an insurer’s criteria for determining if you are eligible for disability benefits, she says. This was evident in two cases that the ombud dealt with recently.

The truck driver who lost his sight
In the first case, a heavy duty truck driver started to lose sight in one eye and was undergoing medical procedures for his condition.

He claimed for income disability benefits on his group life scheme but the claim was declined because the policy stated that for his position, an employee needed to be unable to work in any job or occupation – not only their own job – before benefits would be paid.

The insurer acknowledged that the man was restricted from driving a heavy duty truck but was of the view he could drive a light motor vehicle.

The employer had, however, dismissed the driver without considering deploying him elsewhere. He was 57 and had been a truck driver for 13 years and his vision was severely impaired in one eye.

“The NFO asked the insurer to reconsider their decision based on fairness and equity,” Gabriels said. The insurer agreed to pay.

The driver who recovered
In the second complaint, the ombud agreed the insurer had made the correct decision to decline a claim for disability for an underground load driver on a mine.

The driver had a respiratory condition and the mine doctor found he did not meet the mine’s minimum standards for fitness. The mine was not able to offer an alternative position and dismissed the man.

The employee’s disability policy required him to be “continuously, permanently and totally” incapable of engaging in his “own occupation or a suitable alternative occupation”.

The insurer found the man’s condition was mild and while he was unfit to work underground, he could still operate a load driver vehicle. On re-assessment months later, it found his condition improved, he was not in need of any chronic treatment and his prognosis was good.

“The NFO could not assist this complainant and the complaint was, therefore, dismissed,” said Gabriels.

The lesson: Before your employment is terminated for ill-health, check if your insurer will pay your claim.

2. If you plan to change a beneficiary, tell your insurer

You can change the beneficiary on your life policy at any time, but you need to tell your insurer of the change.

According to the NFO’s annual report, a divorced father had named his minor child as a beneficiary on his life policy. He later decided to change the beneficiary of the policy to a trust. He signed the beneficiary form but died before submitting it to the insurer.

The man’s adviser submitted the signed beneficiary nomination form to the insurer after his death and the insurer paid the benefit to the trust.

The minor child’s mother complained to the NFO, which dismissed the complaint, saying a court would be better suited to addressing the issue.

The child’s mother appealed to the Appeal Tribunal. Three tribunal judges ruled that an insured can substitute one beneficiary for another, but only when there is consensus between the insured and the insurer, which requires communication about the insured’s altered intention.

The judges ruled that in this case there was no consensus between the policyholder and the insurer that the trust was to be paid on his death. The consensus was that the child would be paid and this had not been altered by the time he died.

Any intention he may have had to substitute the child with the trust was not material, as his intention was not communicated to the insurer, so the contract remained as it was at the time of his death.

The judges ordered the insurer to pay the policy benefit to the child.

The lesson: If you nominate beneficiaries, be sure your insurer has recorded this on your policy. If you want to change your beneficiaries after you remarry, divorce, or have children, let your insurer know in writing.

3. Funeral providers should be underwritten

When you take out funeral insurance, be sure the provider’s cover is underwritten by a licensed insurer. The Financial Sector Conduct Authority notes in its recent Regulatory Actions Report that a “significant” number of funeral insurers are taking premiums without having underwriting or backing of an insurer in contravention of insurance law.

Four recent determinations from the Office of the Ombud for Financial Services Providers (FAIS Ombud) against Luvuyo Burial and Consulting highlight the struggle policyholders can face getting funeral claims paid when there is no insurer backing the cover.

In the four cases, Luvuyo failed to pay or made part-payments saying they were the first of a number of instalments aimed at settling the claims, but after that no further payments were made.

The ombud found that Luvuyo’s underwriting contract with an insurer, Sanlam Developing Markets, was terminated in 2021 putting the sustainability of the funeral business at risk. The Financial Sector Conduct Authority was alerted and it suspended Luvuyo’s licence to provide financial services in April this year.

Despite it not having an underwriter or a licence to operate, the FAIS Ombud found that Luvuyo was contractually obligated to honour the funeral claims. The ombud ordered Luvoyo to pay the outstanding amounts plus interest.

The lesson: A funeral insurance business that is not underwritten may struggle to pay claims leaving you without the funeral benefit when you need it. If you are misled into believing a policy is underwritten, you are entitled to the payout – but there could be long delays while you lodge a complaint, have the business ordered to pay and that order enforced.