If you are told to go for tests for life or disability cover, don’t ignore it and think your cover remains the same. 

The Ombudsman for Long-term Insurance recently ruled that the practice of not reducing the premiums when cover has been reduced is unfair, but this does not mean that life assurers won’t continue to reduce your insured amounts and if you are not wary, the outcome could be financially catastrophic.

An AllLife policyholder learnt this the hard way when his claim for disability was rejected because he failed to complete the underwriting process as required within three months. He may have received a few rands back in premiums through the ombud’s ruling, but he suffered a greater loss as he lost out on crucial disability cover.

Underwriting involves answering questions about your health so that the insurance company can assess its risk of providing you with cover.

The case against AllLife involved a policy underwritten by Centriq Life Insurance that it sold to people who are HIV positive. The policyholder was told telephonically by an AllLife agent that the policy had a disability benefit. 

However, to maintain the full cover on his policy he had to complete the insurer’s underwriting process within three months.

He was told should he fail underwriting or not complete underwriting, the cover would automatically be limited to cover for death or disability in an accident only and there would be no cover for death or disability from any illness.

The policyholder did not complete the underwriting process and on March 30 2016 he was notified that his cover had been reduced to accidental cover only. He was, however, not notified that his premiums would not be adjusted in line with reduced benefits on his policy.

The man was again underwritten in August 2018 and  because he was hospitalised for cancer, he did not pass underwriting. His cover remained as accidental cover only, but his premiums were, at this stage, reduced.

AllLife/Centriq argued that premiums are only amended if, after the underwriting process, it is determined that the benefits are for medical reasons limited to those for accidental death only.

“Premiums are not amended if the life insured has not finalised the underwriting process within the three months allocated,” they said.

The man’s claim for disability in that same year was declined as the disability was not as a result of an accident. Irked by the rejection of his claim, the man asked that all his policy premiums be reimbursed because he believed that the cover had been amended without his consent.

In applying the equity principle, ombudsman Judge Ron McLaren upheld an earlier provisional ruling following an adjudicators’ meeting and ordered that AllLife/Centriq calculate and refund, with interest, the difference between the two premiums for the period between March 2016 and August 2018 — the period in which he was only covered for accident and not for disability.

The ombud agreed that the disability claim was not a result of an accident and that the insurer was correct in not paying out a disability claim.