Why waiting period in insurance?

Not many people want to hear about funeral insurance policies the same way no one really would like to know the type of casket that would be used in burying them or their relations.

A chunk of the public sees funeral insurance policies as a catalyst to become a deceased or a bereaved!

However, it is one of the most popular and important types of life insurance policies sold and purchased in Ghana in view of our cultural values.

Typically, one has a huge financial responsibility in the event of the loss of a family member.

Funeral policies are often purchased when there is no ‘immediate’ death in sight.

However, some persons, out of ignorance or the desire to exploit, may ‘urgently’ purchase a funeral policy when a relation is in critical medical condition and could die any time.

This is what has led to the waiting period clause which makes it impossible to claim for a policy in the event of death in the first three or six months after the policy is purchased.

I recently had a tough time explaining to a friend who did not understand why an insurance company failed to provide cover for his ailing father who was on the verge of death! For him, insurance becomes critical only when death is imminent.

No, Sir! Insurance thrives on the concept of uncertainty!

That is the reason there is a waiting period after having signed on to a funeral policy. This has often created a challenge for the insuring public and the following scenario would make the picture clearer.

A scenario

Akuvi is an employee of the Ghana Education Service. She has a policy with insurance company Q. Her policy is a funeral one that covers her mother, son and her husband who had been diagnosed of pneumonia and is bedridden. Two months into the policy, her husband passes on.
 
Akuvi walks into the insurance office with the intention to make a claim (without referring to the agreement in the policy) because her agent who registered her for the policy assured her that the moment the first premium is received and the policy is issued, death to any member of her family would be covered and compensated for [instantly].
 
Though the policy document clearly stated the waiting period of six months within which a claim could not be made unless there is death resulting from an accident, she did not see it because she did not read it.

Insurance company Q declines the claim and agrees to refund only the two months’ premiums she had paid.

She is furious because the agent did not tell her that at the time of signing on.

No amount of explanation could help calm her.

Was Akuvi right?

Akuvi was right! However, she could have been more patient with the explanation being offered by the officials of the company.

Some agents in their bid to quickly sign on prospective clients often don’t dedicate ample time to explain the details, terms and conditions of various insurance policies.

Also of significance is the waiting period that they fail to mention to prospects.

Some agents believe by letting the client know from inception, the waiting period, they (clients) may withdraw from taking up the policy, hence the silence on it.
 
Consequently when the client gets informed, through policy documents, about the terms and conditions, they get disgruntled.

Similarly, they become even bitterer when they fail to read the policy terms and conditions when the insured event occurs during the waiting period.

Why waiting period?

Many people who purchase funeral insurance policies tend to be oblivious of the fact that claims arising from their policies could be declined on the basis of some technicalities.

Typically, life insurance policies have a provision often referred to as waiting period or ‘period of contestability,’ which applies, particularly, when death is as a result of a medical pre-condition.

Thus, the waiting period is a protection for the insurer against people taking out a large amount of life insurance only to die shortly afterwards, mainly to improve their family’s financial position or help in defraying the costs of organising their funerals.

Though this action may be unthinkable to most people, it does occur in the real world sometimes out of ignorance or fraudulent motives.

This waiting period of six months is often from policy inception before rights to benefits accrue.

Unlike some other life insurance policies, a funeral policy is made to undergo this process for it to qualify for claims.

However, if the claim arises as a result of death by accident within the waiting period, it will be honoured once it receives certification by a medical doctor.

What is accidental death?

Accidental death means death by unexpected bodily injuries caused solely and directly by impact and not relating to diseases or illness.

When this happens, the full sum assured (say GH¢5,000) will be paid during the waiting period.

Policy Revival and Second Waiting Period

If for any reason premiums have ceased getting to the insurance company, usually a grace period to have the policy reinstated within 8-12 months is permissible provided all outstanding premiums are paid, and in most cases, plus a little interest.

Please note that after the policy revival, the waiting period is revisited for the six months or so period with the same conditions as outlined above.

The reason this has to be ‘re-run’ is that the health conditions may change at the time of the second waiting period.

The policy will mostly not be revived if it lapses beyond 12 months of non-payment of premiums. This is the reason regular payment of premium must be taken seriously by policyholders, as well as insurers.

The way forward

Regarding policy lapses, insurers have a responsibility of prompting their policyholders whenever there is a default in premium payment.

It is refreshing to note that in recent times some life insurance companies have started sending notifications and alerts to their policyholders for various transactions using available modern technology worth emulating.

Policyholders must also show concern any time they notice that premiums for their policies have not been deducted.

Insurance companies must make it a core responsibility of their agents to talk about the waiting period clause and explain it in detail to the client right at inception. — GB

Until next week, ‘This is insurance from the eyes of my mind’