For many South Africans, life insurance is an essential part of their financial planning to guarantee the future well-being of their loved ones. However, It’s important to remember that not all situations are covered by your life insurance plan.
This blog will examine why a life insurance company might reject your claim. Making informed choices can be simplified when you’re aware of these reasons.
Non-disclosure or misrepresentation of information
One of the most common reasons life cover policies refuse to payout is non-disclosure or misrepresentation on the policyholder’s part. Misrepresentation occurs when the policyholder provides false information when applying for insurance coverage, and this is usually done to obtain lower premiums.
On the other hand, non-disclosure refers to not telling your insurer about important information regarding your health, pre-existing medical illnesses, or hazardous occupations. Although you might not intentionally neglect to tell your insurer about some of these things, doing so could make the policy void.
Insurers in South Africa have the right to investigate claims and request medical information to ensure that you have provided accurate information. If it’s found that you need to provide accurate information, the payout could be withheld from your beneficiaries.
Suicide or intentional self-harm
Suicides are tragic and can be pretty traumatic to family members left behind. However, life insurance companies typically have a suicide exclusion clause. This means the insurance company will not pay a claim if the policyholder commits suicide within a certain period of starting the policy.
This term is typically 12 to 24 months, depending on the payout size in the policy. Some policies may also have a permanent suicide exclusion clause, regardless of the time since purchasing the policy.
Insurers add this exclusion to prevent individuals from purchasing a sizeable life insurance policy, taking their own lives and leaving their families with a substantial financial inheritance.
There are resources available for individuals experiencing mental health challenges and suicidal thoughts in South Africa, including the South African Depression and Anxiety Group (SADAG) and LifeLine Southern Africa.
Death due to excluded events or circumstances
As mentioned, life insurance companies often include specific exclusions in their policy contracts to cover certain events or circumstances. Besides suicide exclusions, some insurers will not pay out if their policyholder dies due to an act of terrorism, war, or partook in criminal activities.
Some companies also include hazardous activities, such as skydiving or bungee jumping, as exclusions in their contract. If the policyholder dies due to one of the excluded events, their loved ones probably won’t see the financial benefit of a life cover payout.
If you plan on taking out life insurance, you must reconsider any risky behaviours you tend to do. If these behaviours could cause your death and are included in the ‘exclusions’ of your contract, it might be best to find safer hobbies.
Failure to pay premiums
Another common reason insurance companies do not payout a claim is when policyholders are not up to date with their premiums. Insurance companies are usually strict regarding premiums, specifically when policyholders do not pay them.
If you miss a payment by a day or two, you may still be able to keep your insurance valid under some policies’ grace periods. While the precise duration for a grace period varies depending on the insurer, the average being roughly 30 days.
Most South Africans set up a debit order with their bank, which automatically pays their Insurance premiums every month on the same day. This gives the policyholders the peace of mind that they don’t have to remember to pay their premiums; it is automatically paid.
Criminal or illegal activity
If a life insurance policyholder dies while performing a criminal or illegal activity, the insurer can refuse to pay out the claim. This includes dying while planning or participating in any criminal or illegal activity.
An insurer could also refuse to pay out any life cover policy if the policyholder was convicted of a serious crime during their lifetime, such as murder or manslaughter.
Policyholders should disclose any criminal activity or criminal record to their insurance company when applying for a policy. If this is avoided, the insurer could also cite non-disclosure as a reason not to pay out a life insurance claim.
Policy expiration or cancellation
There are different types of life insurance policies available in South Africa. Some policies have a specific duration (10 years, 20 years, 30 years, etc.). If the policyholder dies after the policy term, the insurance will not pay out.
As a policyholder, you are responsible for checking that your policy has not expired. If it has, you must contact the life insurance company as soon as possible to extend or cancel. Family members cannot claim from an expired life insurance policy or from a policy you cancelled.
The policy expiration date would be stated clearly in the terms and conditions of the policy contract. You should read this contract carefully to know why your life cover might not pay out upon death.
Conclusion
Many believe that you cannot go without life insurance, and although it is one of the best options to provide for your family upon your death, there are some things you need to consider. Life insurance payouts are not guaranteed, especially if you partook in any of the reasons we discussed in this blog.
Misrepresentation, suicide, partaking in hazardous or criminal activities, non-payment and policy expiration are all reasons a life insurance policy would not pay out your loved ones’ claim after you pass away.
Carefully read your policy terms and conditions and ensure you are not doing anything the insurance company might frown upon.
