Other prob­lems with fu­neral as­sur­ance schemes

Weekend Argus (Saturday Edition) - - GOODPOSTER -

There are many prob­lems with fu­neral as­sur­ance in ad­di­tion to the three that could be grounds for class ac­tions. Ad­vo­cate Chris Shone says the prob­lems are:

◆ No con­trac­tual pro­vi­sion for pre­mium in­creases. Shone says that life as­sur­ance com­pa­nies can in­crease premi­ums with or with­out no­ti­fy­ing pol­i­cy­hold­ers, while the ben­e­fit is not in­creased. “If your pre­mium is go­ing up by 15 per­cent a year and it’s R20 a month now, in five years it will be R40 a month, but you still only get a lousy R5 000 fu­neral ben­e­fit,” he says.

◆ Cover is from month to month. “This means the cover can be can­celled by the ‘in­surer’ at any time, and that if the pol­i­cy­holder fails to make pay­ment, cover ter­mi­nates and all is lost,” he says.

◆ No paid-up val­ues. Fu­neral as­sis­tance poli­cies do not pro­vide a sur­ren­der value, Shone says. “You stop pay­ing, it’s over. With [some] other insurance prod­ucts, you get a paid-up value or sur­ren­der value when you stop pay­ing. A for­mula is ap­plied to work out the value; you don’t lose ev­ery­thing. In this game, you lose it all.”

◆ No in­sur­able in­ter­est. Insurance com­pa­nies in the United States have been sued for not es­tab­lish­ing whether, in fact, a per­son who takes out a pol­icy had an in­sur­able in­ter­est in some­one else’s life, Shone says. “Here we don’t care. No one checks who has an in­sur­able in­ter­est in whom,” he says.

◆ Dou­ble un­der­writ­ing. It is com­mon for an un­der­taker who has is­sued a fu­neral pol­icy to ap­proach two life as­sur­ers and re-in­sure the pol­icy twice, Shone says.

“The pol­i­cy­holder doesn’t know this. When the pol­i­cy­holder dies, both in­sur­ers get a death cer­tifi­cate – and you can get around the orig­i­nals, be­cause ev­ery­one cer­ti­fies ev­ery­thing th­ese days. The un­der­taker uses one pay­out to do the fu­neral and pock­ets the other. It hap­pens a lot.”

◆ Ac­tu­ar­i­ally un­sound premi­ums. Shone says it is not un­com­mon for a fu­neral scheme to con­sist of a bakkie, a hearse and a cou­ple of ma­chines. Apart from that, there are no as­sets and no re­serves.

“In the event of a flood of claims, the busi­ness would go bust and there would be no means of re­cov­er­ing money for pol­i­cy­hold­ers. Long-term in­sur­ers have to have re­serves or re-in­sur­ers – not in this busi­ness,” he says.

◆ No “pre-paid” fu­neral plan. Shone says an as­sis­tance pol­icy pro­vides cash to meet the costs of a fu­neral, but it is not a pre­paid fu­neral plan, which is the per­cep­tion among many con­sumers in this mar­ket.

◆ Ex­ces­sive com­mis­sions. Com­mis­sions in the fu­neral as­sis­tance busi­ness are ex­or­bi­tant – they can ex­ceed 30 per­cent of the pre­mium, Shone says. Fu­neral as­sis­tance is the big­gest sec­tor of the insurance in­dus­try, but the com­mis­sions are not reg­u­lated.

◆ Premi­ums are payable for life. “Gen­er­ally, this is the case, which is fun­da­men­tally flawed. With an escalating pre­mium, you’re go­ing to be pay­ing, at age 99, prob­a­bly R5 000 a month for your R5 000 fu­neral ben­e­fit. It makes no sense.”

Shone sug­gests that premi­ums be made payable for a cer­tain term un­til the age of re­tire­ment, but that the ben­e­fits re­main in place un­til death.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.