HOW IS A BREACH OF CONTRACT BEING TREATED IN LIFE INSURANCE?
The primary purpose of life insurance is to provide financial succor to the named beneficiary when the life assured is dead. There are three types of life insurance for individuals who wish to participate in a life insurance contract, these are:
Term Assurance:?This is a type of life insurance policy that pays out claim benefits when the assured dies during the insurance period. It is the cheapest form of life insurance policy available.
Whole Life Assurance:??This policy pays the claim whenever the life assured dies. It is whole life because the life assured can continue paying the premium for the rest of his life without expecting to make a claim. This policy pays out when the life assured is no more.
Endowment Assurance:?This type of life insurance has two types of claim benefits, these are:
The death benefit is paid to the named beneficiary when the life assured dies during the terms of the contract, that is, when the life assured dies within the duration of the policy, for instance, if the contract is ten years and the assured dies before the end of ten years, the death benefit will be paid to the named person to receive the compensation, that is, the beneficiary.
Maturity Benefit pays out to the life assured if the assured is alive till the end of the policy duration. If the policy duration is ten years and the assured outlives the policy duration, then the maturity benefits are paid to the life assured.
Among these three life policies for individuals, the most attractive policy is the endowment, because of the expectation of the life assured to receive their money back at the end of the policy duration. Often times when the assured gets paid their maturity benefits, they tend to compare the proceeds with investment proceeds without putting the following into consideration:
When life assured receives the maturity benefits, he then begins to feel that if he had invested the sum of Ten Million Naira for ten years, he would have received more than what the life office is paying him, having forgotten that he saved up the Ten Million Naira over a period of ten years to make up the lump sum, while investment will require him to invest a lump sum from the beginning, still using the ?10million as an example of the sum assured, if the life insured had died two or three months into the policy, the beneficiary would have collected the ?10million he had not saved. The assured has forgotten the primary purpose for which the policy was put in place from the beginning, the blessing of maturity benefit tends to water down the life policy as being ordinary savings.
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HOW DOES THE LIFE OFFICE TREAT A BREACH OF CONTRACT?
?We shall be discussing three types of breaches in life insurance contracts:
Non- Disclosure:??This is a breach of one of the fundamental principles of insurance, the principle of utmost good faith, this principle expects the insureds to disclose all material information regarding the circumstances surrounding the risk to be insured. when a life insured is to explain a particular ailment at the time of taking up the insurance cover, but refuse to disclose it, for instance, if the assured is diabetic and fully aware of his health status but refuses to disclose it to the underwriter, when the assured dies of the same ailment in less than one year into the policy, the claim would be inadmissible based on the breach of utmost good faith, because the assured failed to disclose his health status to the underwriter at the time of underwriting the policy, this will be termed non-disclosure of material information.
Incomplete Premium:?When the premium has not been fully paid, neither the beneficiary nor the life assured will enjoy the full benefit of the life policy, the case of endowment policy as an example, if the assured dies within the policy duration, and has not paid the premium till the time of death i.e if the policy is no longer active as at the time of death, the beneficiary will not be entitled to the death benefit, the death benefit is meant to be the sum assured. The sum assured is the agreed sum the underwriter promised to pay the beneficiary if the assured dies with the condition that the policy remains active at the time of death. If the assured defaults in paying the premium as at when due, the policy will cease to be active, if the policy is no longer active, then the account balance in the premium account position of the?assured will be paid to the beneficiary. In the same vein, if the assured lives to the maturity of the policy but has not paid up the premium till the maturity, he will also not enjoy the maturity benefits, he will not get the sum assured with the accrued benefits, he will only receive the account balance in the premium account position. If he stops paying the premium before the policy reaches surrender value, he may not enjoy any form of interest on his account balance, but if he stops paying after the policy has reached surrender value, he may enjoy some interest, depending on the wording of the policy.
Termination:?When the assured wishes to terminate his policy, this also is a breach of contract that is not without a penalty. The insured who wishes to terminate his policy within one or two years may not be able to get any money from such a policy. The insuring public is not happy to hear that they cannot access any money from their policy account if they wish to terminate the policy when it is less than one or two years, depending on the policy wording. This is the reason for such policy conditions. When a life insurance cover is taken up by a life assured, let us look at the sum assured of ?10 million. The life office buys the life cover for the assured with 10% of the proposed sum assured, i.e. ?1miilion is spent by the life office to purchase a ?10million sum assured for the assured, with the expectation that the assured will keep paying the premium as at when due till maturity or till death in case of the death benefit for the beneficiary. The life office recovers the amount spent on behalf of the assured over time as the assured keeps paying the premium, this is why even if the assured dies at least two months into the policy, the ten-million-naira sum assured will still be paid to the beneficiary because the cover had been paid for by the underwriter from the inception of the policy when the assured has just made a one- or two-times commitment. This is the reason why the assured is not able to access the money if he wishes to terminate the contract in less than one or two years when the contract has not reached the surrender value. The surrender value is the value for which the life office has been able to recoup the amount spent to purchase the life cover on behalf of the assured at the beginning of the life policy.
Life policy is neither an ordinary saving in the bank nor an investment that he can access at any time. Life policy is to provide financial succor to loved ones in case of an eventuality, so whenever we take up life insurance, we should endeavor to go by the terms of the contract to enjoy the full benefit. It could either be death or maturity benefit as the case may be.
For further inquiries or consultation about life insurance and all other forms of insurance, kindly reach out to me on:?
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MD/CEO @ Profound Insurance Brokers Ltd | Financial Services Expert
2 年@lifeinsurance, a latent benefit to be embraced by all.