Life assurers dodge consumer laws to sell funeral cover

Life assurance companies have found an innovative way to sell funeral assurance to the low-income market. However, if you sign up for one of these policies, you lose all the rights you would normally enjoy as a policyholder. Bruce Cameron reports South Africa’s main life assurance companies are selling funeral assurance using structures designed to side-step consumer protection laws.

For many years, the funeral assurance market has been one of the biggest arenas for abuses by life companies, administrators and salespeople. As a result, there has been a steady increase in consumer protection regulation.

The Financial Services Board ( FSB) is investigating the structures. Jonathan Dixon, FSB deputy chief executive in charge of insurance, says the FSB is speaking to the life industry about the structures.

“We are concerned,” Dixon says, particularly because low- income consumers, most of whom are not financially sophisticated, are the main target market for companies that sell funeral assurance. The structures work as follows:

A life assurer sells a single funeral assurance policy to a funeral parlour, burial society (often established by a funeral parlour) or the administrator of a funeral policy in the name of the funeral parlour, burial society or administrator.

These entities sign up consumers as “members” of the policy.

The life company sets the premiums paid by the funeral parlour, burial society or administrator based on the number of “members” and their average age.

The funeral parlour, burial society or administrator can decide what to charge the “members” to belong to the policy.

They can decide what share of the benefits to pay the “member” from any benefit paid by the life assurance company.

If the funeral parlour, burial society or administrator fails to pay out or provide the funeral benefits, the