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Life Assurance
Monday, May 1, 1989
AIDS and the rest

Over recent years fraud seems to have become a fashionable crime. The life assurance industry is also on the list of victims. In response their repudiation of claims has risen considerably. This follows a trend by policyholders of not disclosing material facts when taking out a life assurance policy.
John van der Linde, GM of Commercial Union explains.” It is the experience of the life industry that fraudulent non-disclosure of material facts is on the increase, resulting in a rising number of death claims being repudiated.”
Although non-disclosure is often related to deaths caused by Acquired Immune Deficiency Syndrome (AIDS), Mr Van der Linde says his company thoroughly investigates all early death claims, irrespective of the stated cause of death. He adds, “It is not very difficult to spot fraudulent claims associated with nondisclosure of material information, whether related to HIV infection, cancer, heart, or any other medical condition.”
The Human Immunodeficiency Virus (HIV) causes AIDS. So it’ snot surprising that life companies have stricter criteria for new policies and are closely examining claims on existing ones.
Taking AIDS cases as an example, Mr Van der Linde notes that insurers are looking more closely at the question of AIDS tests and the financial needs of the policyholder. “What happens is that a client may take a number of small policies with different companies which, when added together, amount to a vast sum.
“The Life Offices’ Association (LOA) stipulates that a prospective client be required to furnish information in the application form on how much life assurance he has and how much he intends getting.”
For example, if it is found that a clerk aged 25 is insured for a total of R1m and the amount is not in line with his financial requirements, this is likely to prompt a closer look at the information given in his application form.
In the case of a client who contracts AIDS after signing his life assurance contract, a clause (if imposed) in the policy of all LOA companies will restrict his benefit to eight times the annual premium.
Mr Van der Linde explains the need for the clause, “If only 2% of people pick up the AIDS virus, the premiums on full death benefits for the other 98% of policyholders would double. By applying the clause, premiums can be kept down for all policyholders.
But Mr Van der Linde stresses that it is not only AIDS related deaths which have come under the microscope. ‘‘If a claim arises within the first few years of a policy, we will write to the last attending doctor for a complete breakdown of the client’s medical history and the circumstances surrounding his death. This information is supplemented with the death certificate.”
Significantly, it is only the non-disclosure of material facts which will lead to the repudiation of a life assurance policy. For example, if a policyholder gives a false date of birth to ensure lower premiums, his policy will not he repudiated in the event of a claim. The life assurer will simply adjust the payment in line with what the client would have received had he given the correct birth date.
The problem is that fraudulent non-disclosure also affects those who are completely honest in their dealings with life offices. The administration efforts needed to check information results in the process of paying all claims being slowed down, while costing more in time and effort.

Copyright © Insurance Times and Investments® Vol:2.5 1st May, 1989
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