In this tough economic climate, policyholders may decide not to pay their short-term or non-life insurance premiums to save money. But this can result in more financial difficulties if a loss occurs when the premium is not paid.
To safeguard policyholders by ensuring continuous cover, an insurer must grant a policyholder a grace period within which to pay an unpaid premium. Policyholder Protection Rule 15 provides that an insurer shall ensure that a policy contains a provision for a period of grace of not less than 15 days after the relevant due date to pay the premium for that month.
Edite Teixeira-Mckinon, the Lead Ombud of the Non-life Insurance Division of the National Financial Ombud Scheme (NFO), says that notwithstanding the provisions of Rule 15, an insurer may still reject a claim on the grounds that the premium was not paid.
She cited a recent complaint that arose after a motorist was aggrieved about the cancellation of his policy because the premium for March 2024 was not paid, and the insurer’s refusal to process his claim for damage to his vehicle, which resulted from an accident on 13 April 2024.
According to the insurer, the complainant’s policy was cancelled because of two unsuccessful attempts to collect the premium in March 2024. The second attempt was made during the grace period.
The relevance of the premium for March 2024 is that premiums are paid in advance, and the complainant needed to have paid the premium during March to enjoy cover for April.
Teixeira-Mckinon said the complainant submitted that he was unaware of the missed payments, and he was willing to pay the outstanding premium to have the policy reinstated, which, in his view, demonstrated he was acting in good faith in rectifying the situation.
“While under no obligation to do so, some insurers go the extra mile and remind the policyholder of the unpaid premium via SMS, a telephone call, or emails. These are done, however, as a matter of courtesy. Ultimately, it is the policyholder who must ensure that the premium is paid timeously to enjoy cover in the event of a loss.
“The insurer demonstrated that it had acted in accordance with the Policyholder Protection Rules and the policy provisions, and, therefore, the cancellation of the policy resulted in the complainant not enjoying cover for the accident damage to this vehicle. The NFO agreed with the insurer’s stance,” said Teixeira-Mckinon.
Although premiums for insurance policies may seem to be a futile expense when there is no claim, incidents that give rise to claims are often beyond human control and can occur at any time.
To ensure that the policy continues to provide cover, both parties must fulfil their responsibilities in ensuring that premiums are paid according to the agreed terms of the contract, she said.
Instead of not paying the premium because of financial constraints, it is advisable that the policyholder contacts their broker or insurer and attempts to renegotiate the cover.
For example, if comprehensive motor vehicle insurance has become too expensive, consider selecting limited cover that covers damage or loss caused to the policyholder’s vehicle by fire or theft, or damage caused to another person’s vehicle in the event of an accident. In this way, the policyholder is not left fully exposed if a loss arises, thereby adding to their financial burden.
Also, it is important to remember that if a policy is cancelled by an insurer as a result of the non-payment of premium, the policy cancellation needs to be disclosed by the consumer when they next want to take out insurance. The failure to disclose such a cancellation may constitute a misrepresentation, which entitles the new insurer to cancel the policy when it discovers the non-disclosure, leaving the consumer, once again, without cover.
