JANU -WORRY FINANCIAL CONSTRAINTS & INSURANCE POLICIES

For most households, the first few months of the year are the most financially demanding and, as a result, people struggle to make ends meet. It is, as such, not surprising that most people relook at their budgets to identify non-essential expenses. It often happens that insurance policies are one of the few items that people consider to be not as essential. Whilst this may save people a few hundred rand in premiums, it comes at huge risk. As Murphy’s Law would have it, most insured risks tend to eventuate at a time when one’s insurance policies are not in order. It is, therefore, crucial that people are reminded of the legal threats that come with failure to pay insurance policies timeously or at all. This legal piece will, accordingly, zoom into the legal ramifications of failing to pay your insurance premiums timeously or at all in the context of both short term and long-term insurance policies.

Legalities:

Keeping your insurance policy valid is the most important thing when it comes to insurance, failing which an insured is not covered and must personally carry the burden if a risk materialises. Failure to pay insurance premium timeously or at all may lead to an automatic lapse of the policy. It would, however, differ from policy to policy. Therefore, it is important to have regard to the relevant clause of the policy dealing with the failure to pay a premium. It also depends on whether the policy in question is short term or long term. With short term policies, they usually terminate automatically where there is a failure to pay on time. Depending on the policy wording, there may be a grace period provision which allows the insured to pay a premium within a certain number of days after the agreed date of payment. During the grace period, the insured fully enjoys all the benefits of the policy. The position is usually slightly different with long term insurance policies. Long term insurance policies do not usually terminate immediately upon failure to pay a premium. The insured is normally able to enjoy cover unless he has missed payment for over 3 (THREE) months. Even then, most insurers would “suspend” the policy and not immediately “terminate” cover. If the insured’s endeavours to have the arrears settled fail, then the cover lapses or gets terminated. One needs to consider the policy wording and, where there is a broker, verify with the broker as to what are the applicable terms relating to failure to pay premiums. Importantly, and especially with short term insurance policies, there is no duty on an insurer to inform the insured when cover automatically terminates – mostly policies specifically specify the consequences of failure to pay timeously. In practice, however, and on the basis of good faith, most insurers do remind the insureds.

Conclusion:

Whilst the beginning of the year always come with lots of financial commitments for most people, it is critical to ensure that one has a valid insurance policy in place, unless one takes a deliberate decision to let go of the cover. Where one is facing financial difficulties, it is important to get in touch with one’s broker or insurer and make the necessary arrangements or consider other less expensive offerings. Finally, where an insurance claim has been repudiated on the basis that the policy had lapsed, it may be necessary to seek a legal opinion to verify this particularly with long term insurance policies, as the policy wording may be highly technical and complex.

Mtho Maphumulo

Senior Associate | Litigation Attorney

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