In this tough economic climate, many policyholders are forced to make difficult financial decisions, sometimes sacrificing their short-term or non-life insurance coverage to save money, says Edite Teixeira-Mckinon, Lead Ombud of the Non-life Insurance Division of the National Financial Ombud Scheme (NFO).
She says while this might seem like a logical way to ease financial pressures, it can result in severe financial setbacks if a loss occurs during a period when premiums remain unpaid.
“Everyone’s worried about their finances right now, but it’s vital that you don’t cancel your insurance or default on your insurance premiums. It’s hugely risky to cancel your insurance, as it is in a time of crisis when you actually need insurance the most. And don’t just stop paying the premium; bad finance decisions can come back to haunt you later,” Teixeira-Mckinon says.
The NFO operates as an independent body established to receive, investigate, and resolve complaints against financial service providers, free of charge to consumers.
According to the NFO, to safeguard policyholders and ensure continuous cover, insurers are obligated to grant a grace period within which unpaid premiums can be settled.
Policyholder Protection Rule 15 stipulates that all insurance policies must provide a minimum grace period of 15 days from the due date for the premium to be paid. However, despite this provision, insurers may still reject claims if premiums remain unpaid beyond the grace period, it says.
Teixeira-Mckinon highlighted a recent complaint from a motorist who was aggrieved by the cancellation of his policy due to non-payment of his March 2024 premium. The insurer subsequently refused to process his claim for accident-related damages sustained on April 13, 2024.
According to the insurer, the policy was cancelled after two unsuccessful attempts to collect the premium in March 2024, one before the grace period and another during it. Following these failed attempts, the insurer proceeded to terminate the policy, leaving the complainant without cover for April 2024 when the accident occurred. Since premiums are paid in advance, the policyholder needed to have settled March’s premium to be covered for April. Teixeira-Mckinon says the complainant claimed he was unaware of the missed payments and was willing to settle the outstanding amount to reinstate his policy, believing that his actions demonstrated good faith.
“While under no obligation to do so, some insurers go the extra mile and remind the policyholder of unpaid premiums via SMS, a telephone call, or emails. These reminders are, however, a courtesy. Ultimately, it is the policyholder’s responsibility to ensure that premiums are paid timely manner to maintain 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 his vehicle. The NFO agreed with the insurer’s stance,” Teixeira-Mckinon says.
She further cautioned that while insurance premiums may seem like an unnecessary expense when there are no claims, unforeseen incidents can occur at any time, and the financial implications of being uninsured can be severe. To ensure uninterrupted coverage, both policyholders and insurers must uphold their respective obligations, particularly in ensuring premiums are paid in line with agreed contractual terms, she says.
Instead of simply not paying premiums due to financial constraints, policyholders are advised to contact their broker or insurer to explore alternative coverage options, says Teixeira-Mckinon. For instance, if comprehensive motor vehicle insurance becomes unaffordable, selecting a limited cover policy for fire, theft, or third-party damages could provide essential protection without the full financial burden of comprehensive insurance.
Another important factor to consider is that if an insurer cancels a policy due to non-payment of premiums, the policyholder is required to disclose this cancellation when seeking new insurance. Failure to do so may constitute misrepresentation, giving the new insurer grounds to cancel the policy upon discovering the non-disclosure, once again leaving the consumer vulnerable without cover, she says.
PERSONAL FINANCE
