If you have an elderly parent who has been paying towards a life or funeral policy for many years, but can no longer afford the premiums, it might make sense to take over the policy payments if you are the beneficiary.
If the policyholder cancelled the policy, they would effectively lose out from all those years that they had contributed towards the insurance policy. By continuing the policy, the beneficiary can ensure that the funeral costs are covered, or that the life policy pays out as the parent/relative intended.
However, in taking over the policy premium you need to make sure you follow the correct procedure. A recent ruling by the Ombudsman for Long-Term Insurance highlights some of the legal complexities.
In this particular case Ms M, a client of First Rand Life (administered by FNB) had a funeral policy for R30 000 which she had taken out in October 2011. The beneficiary was her niece Ms J.
On January 2 2017 the policy lapsed because of nonpayment. Her niece and beneficiary Ms J telephoned First Rand (FNB) to reinstate the policy on January 4 2017 and continued to deposit money into her aunt’s bank account to cover the monthly premium.
The policy holder, Ms M, died eight months later in August 2017 and her beneficiary Ms J claimed the benefit. However, First Rand declined the claim, saying Ms J had impersonated her aunt when she had reinstated the policy.
The beneficiary, Ms J, argued that her aunt had asked her to phone about the change of payment arrangement because she was in bad health at the time. She had phoned in the presence of family members.
She stated that: “This policy was taken and signed for by my aunt in 2011 and immediately after that I paid the premiums every month from my Absa bank account to her account for some time.
“I paid the premiums because my aunt did not have money at a time. I took the responsibility to pay it once more because it was my responsibility to bury her should something happen to her. And I took the responsibility to bury her as I always do with all my late mother’s siblings.”
As with most cases there are two ways of looking at the situation.
From First Rand’s perspective it needs to guard against fraud and beneficiaries taking advantage of a policyholder for their own benefit.
From the family’s perspective, by pretending to be her aunt, Ms J was most likely simply avoiding an administrative nightmare of getting power of attorney.
Fortunately for Ms J, the ombud agreed with her position and took into account her actions were reasonable and the insurer had not been prejudiced as the policy had been in force and the premiums had been paid. The ombud stated that “it is accepted that Ms J transferred money to Ms M’s bank account to cover the premium amount so that the late Ms M could pay the premium.
“In our view, that cannot be used as a reason to decline the claim. There is no legal principle preventing a beneficiary from funding the policyholder to enable her to pay premiums. The policyholder may not have been able to afford them otherwise.”
The ombud said there was nothing in the policy saying the policyholder had to pay the funds from the original source, adding that “it would in any event be an unusual and oppressive provision”.
“The fact that the policyholder and the beneficiary arranged their affairs in such a way to benefit themselves is not in itself illegal or unfair. It is not unusual for parties to organise commercial transactions in such a way that they may derive maximum advantage from their transactions.”
The ombud pointed out that this was a funeral policy to cover the funeral costs of Ms M rather than simply benefit the beneficiary.
Although the ombud ruled in favour of the beneficiary, it still took time to find a resolution and for the payment to be made. Ideally when taking over a policy, it is best to follow the correct procedure.
Lee Bromfield, the CEO of FNB Life, said there is no rule stopping a beneficiary from paying money into the policyholder’s account to fund the premiums; the problem is that a third party is not permitted to amend a policy without the required authorisation.
It is illegal for any individual to pose as a policyholder to gain access to confidential information.
If a beneficiary wishes to continue the premium payments, there are several options:
- You can pay the premium amount into the policyholder’s bank account;
- If any amendments need to be made you must get a valid power of attorney. This is a requirement that protects both the policyholder and the insurance provider; and
- If you are concerned about the premium being paid, you could set up an alternative payment from your bank account, but this would need to be verified by the policyholder or the power of attorney.