When a stranger makes himself your life insurance beneficiary

photo : iol
It reads like a horror story: a stranger has made himself the beneficiary of a life policy with your name on it. Then intruders start prowling around your property. Suddenly you don’t feel safe anymore. The life insurer won’t give you any information and you don’t know where to turn.It might well be worthy of being scripted into a B-grade flick, but Mrs EN Madonsela’s story is chillingly real.

She took out life cover with Liberty Life in 2005, but recently found out that the beneficiary of the policy is the person who sold it to her, a Mr Mabasa.

When she lost her job, she went to Liberty to cancel the policy because she could not afford it anymore, only to discover Mabasa had made himself the beneficiary.

The matter escalated quickly: Madonsela was told to open a case of fraud against Mabasa, who later shot himself.

Madonsela says then she discovered that he had made his family beneficiaries – and had taken out additional policies in her name. And someone continued paying all those premiums after his death, so the policies were still active.

Because Mabasa committed suicide, the police investigation was closed.

“I am not paying for these policies and I don’t know who is – Liberty won’t disclose the information to me, even though my name’s on the policies. If I die, who will benefit from the policy?

“I don’t have children and wanted my nephews and nieces to benefit. I am terrified,” Madonsela explained.

Such abuse is rife in the funeral insurance market, with neighbours taking out policies on each other, and family members ensuring they cash in on deaths.

In one case dealt with by the Long-term Insurance Ombudman, a fraudster, helped by hospital staff, took out funeral policies on the lives of terminally ill people with whom he had no familial relationship. He paid the premiums during the waiting period and afterwards.

Whenever a patient died, he collected the proceeds as the nominated beneficiary. The ombudsman noted: “What was particularly galling was that he had the impertinence to complain to this office when one of his claims against the insurer was repudiated.”

In a paper written by Justice PM Nienaber, the then ombudsman for Long-term Insurance, and his deputy, Jennifer Preiss, in 2006, they note: “Much of the funeral insurance business in South Africa, many believe, is blighted: fraud is rife; irregularities abound; some operators function both illegally and unscrupulously; and the public, especially the less affluent segment, is on occasion cynically exploited. But all is not unsavoury.

“Many registered insurers and licensed intermediaries active in this area are above-board and render an invaluable service to the community as a whole.

“Funeral insurance fulfils an unmistakable need and there are thousands of policies in South Africa operating regularly and without mishap.”

But Ganine Bezuidenhoudt, an assistant ombudsman in the office of the Ombudsman for Long-term Insurance, says while the funeral sector does allow one to take out a policy on another person’s life, policy holders do need to have an insurable interest in the insured life. “You can’t just take out a policy on someone’s life, without being able to prove a relationship or financial dependence.

“Without that, insurers will be within their rights to decline a policy.”

In a 2007 newsletter, the office dealt with a similar case in which a man complained that his life was insured in 1993 by his then wife. She ceded that policy to her brother, who initially sold her the policy.

When the complainant discovered this, he contacted the ombudsman, complaining that a third party owned a policy on his life, that the insurer wouldn’t provide information about the policy to him, and he wanted it cancelled.

Bezuidenhoudt explained because he was simply the life insured and not the policyholder, he had no right to information about the policy. Only the policyholder was entitled to this. When his wife had applied for the policy, she had an insurable interest on his life, so the ombudsman couldn’t assist him.

But in Madonsela’s case, there is no insurable interest.

Bezuidenhoudt said: “Recently there were quite a few amendments to the Policyholder Protection Rules proposed. The December 2016 draft required the consent of the person who is the life insured. The September 2017 change unfortunately removed this requirement following industry representation.“

Liberty Life said Madonsela’s matter was under investigation. In a statement, Liberty’s customer relations department said: “We have contacted Mrs Mandonsela and her matter is still under investigation.

“We anticipate the matter will be resolved by tomorrow, April 6 midday. Thereafter we will be able to give you a final response.”

They weren’t able to do so but promised to provide an update this week.

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