Life assurers can't sell you funeral cover that you cannot use and deny you benefits when you claim because of a clause in the fine print, the ombud for financial advice says.

Noluntu Bam, the Ombud for Financial Services Providers, says in her latest annual report she ordered Workerslife Assurance Company to pay Mr M R10000 of funeral cover it had refused to pay because his cousin died of a condition it had excluded in the fine print.

Mr M had taken out funeral cover for his cousin in May 2013, but when his cousin passed away in March 2014, Workerslife refused to pay because Mr M's cousin's death was related to his pre-existing condition. Mr M was forced to take out an expensive loan to cover the cost of his cousin's funeral.

When he approached Workerslife for funeral cover for himself, his mother and his cousin, Mr M had told the life assurer that his cousin had a history of tuberculosis.

The Workerslife representative told Mr M that his cousin was eligible for cover as long as he survived the three-month waiting period that followed the date the policy came into effect.

The representative also wrongly informed him that his mother was not eligible for cover, because she was too old. The ombud found this advice was incorrect because his mother was 76 years old at the time, and the policy said extended family members qualified for cover as long as they were below the age of 80.

The ombud says because Mr M disclosed his cousin's illness, he and the life assurer understood from the start that his cousin had a
pre-existing condition.

Ten months after taking out the cover, when Mr M claimed, the doctor who treated his cousin in the Eastern Cape confirmed that his cousin had been treated for TB in May that year and June the year before.

Workerslife then rejected the claim, relying on two clauses in the policy that exclude cover when the death is related to pre-existing conditions (conditions you had when you took out cover).

The first clause said there was a waiting period of 12 months on pre-existing conditions. Workerslife claimed this exclusion appeared prominently on the application form Mr M completed. But the ombud found the exclusion was far from prominent, the annual report says.

The second clause in the policy document excluded cover for the life of the policy for pre-existing conditions in members of the policyholders' extended family only.

Mr M received the policy document only after he had taken out the policy.

Bam says this exclusion was "so wide it would have been almost impossible for any person to successfully lodge a claim under the policy". The ombud found that Workerslife had failed to advise Mr M whether the product was suitable for him in relation to his circumstances. Advice about the suitability of a policy can't be abstract, she said.

This contravened the code of conduct in the Financial Advisory and Intermediary Services (FAIS) Act.

Bam, who is also known as the FAIS ombud, also found that Workerslife had not drawn Mr M's attention to the "proper form" of the exclusion clauses.

The FAIS Act gives you as a consumer of financial services and products far-reaching rights aimed at protecting you from bad advice and the misdeeds of financial services providers.