August 6, 2020

An insurance contract is a document representing the agreement between an insurance company and the insured. It defines the obligations of both the insured and the insurer. Most insurance policies contain terms that are hard to understand and policies are often written in a confusing manner. Besides providing coverage, policies also assign certain responsibilities and contain limitations. Failure to meet these responsibilities and understand the limitations could be costly for any consumer.

Understanding conditions and limitations of insurance policies

Policies always specify conditions, limitations and exclusions. These aspects of agreements need to be read thoroughly and understood before signing the agreement.

• Conditions – are the requirements that the insured must fulfil such as paying premiums or reporting a loss. In an agreement, payouts are also dependent on conditions stipulated by the insurance company. Conditions such as “loyalty additions paid based on company experience” are red flags because this leaves payout at the company’s discretion and there is no assurance given to consumers.
• Limitations – these specify the limits of the policy such as the maximum amount the insurance company will pay. Phrases like “loyalty additions if any” are also a limitation. They express that loyalties or bonuses will only be paid under special circumstances.
• Exclusions – these specify what is not covered by the contract.

Case study

A consumer, who signed up for a MicroLife insurance policy failed to receive any bonus or loyalty additions when the policy matured as promised by the insurance agent who sold her the policy. After paying up all the premium required for the 5-year term and upon maturity, the complainant learned that the loyalty additions promised was based on the Corporation’s experience of the product and there was no loyalty additions applicable this time for all 5 year term MicroLife policies. This vital piece of information was not disclosed upfront when the insurance agent made the representation to the consumer.

According to the website, MicroLife is a microinsurance product providing death, disability, accident and funeral expenses benefits bedsides substantial savings and returns on maturity. Perhaps the first of its kind in the Pacific region, this product is offered in Fiji only and aims

to provide low cost life insurance solutions to the segments of society who have up to this point been under served, thereby promoting greater financial inclusion.

Considering the unprecedented situation, the nation is facing right now, how can an insurance company make such declaration after obtaining premium payments from the most vulnerable in our society?

The Council learnt after further discussions with the insurance company, that Loyalty Addition is payable, subject to Corporation’s experience.  Loyalty Addition is declared as per the Actuarial Valuation done every year under the particular plan depending upon the conditions like term of the policies, exits of the policies, and the overall experience of the Corporation. Further, only MicroLife policies with 8-10year terms will be paid loyalty additions. However, 5year terms are not going to be paid any loyalty additions upon maturity. Thus, any investment into a 5year term MicroLife policy is not worth it at as the consumer is just getting her money back without any returns. 

This case is also a clear indication of consumers being cheated on the pretense of getting return on investments only to be informed later (which is upon maturity) of the real conditions. 

The Council’s experience with handling complaints against agents, has shown that some agents are not transparent in their dealings with consumers. Misinformation and lack of knowledge of the various products are some of the issues dealt with against agents who tend to mislead consumers in a bid to sell the product so that they get a commission. This practice denies consumers the right to full disclosure and many blindly enter into signing up for policies they may not purchase if they were fully informed in the first place.

Consumer Tips

When taking an insurance policy or making a claim consumer are urged to do the following:

• Understand your financial and insurance needs – before looking around for suitable insurance products, it is prudent to understand your financial circumstances and needs first. Always shop around and compare insurance products available in the market.
• Do not buy on impulse – buying a life insurance product is a long-term commitment. Ensure you can afford the premiums over the tenure of the policy. Premature terminations are likely to result in not getting back any premiums you have paid. Take your time to understand the product that best suits your needs before buying.
• Read all policy documents – Before buying a policy, read all the policy documents and ask questions when in doubt.

Consumers facing issues with their insurance policies or generally seek advice before signing up for a policy are urged to contact the Council on toll free number 155 or email complaints@consumersfiji.org