In a recent determination against assurer Discovery Life, the Ombud for Financial Services Providers, Noluntu Bam, ruled that a woman be paid out R800 000 for a claim on her husband’s life, despite the fact that the policy had not come into effect when her husband died in a car accident.

The complainant, Ms M, said she took out life cover of R2 million with Discovery Life on her and her husband’s lives on March 23, 2015, with the inception date of the contract May 1, 2015.

Ms M’s husband was killed in an accident on April 18, 2015, 13 days before the contract came into effect.

Ms M told the ombud that she did not know at the time of the sale that she could have chosen an earlier inception date. Discovery Life informed her of this option only when she lodged the claim, by which time it was too late. The claim was subsequently rejected.

In its response to the complaint, Discovery Life said Ms M had the choice to change the inception date during her conversation with the sales agent. It said it was up to Ms M to object to the inception date and to request an earlier date, but she failed to exercise that choice.

Discovery Life said it had upheld its duty to act in the customer’s interests by doing everything it could to ensure that her choice was an informed one.

Following a protracted exchange between the ombud and the assurer, Discovery Life conceded to pay Ms M R400 000 under its so-called immediate cover benefit.

When pressed by the ombud’s office, the assurance company conceded that it did not “explicitly give the complainant an option as to the date on which the policy would commence”. It said it was “not necessarily standard practice” for the consultant to provide a client with an option in the first instance, and that it depended on the client’s response as to whether or not the consultant went into further detail regarding the selection of an inception date.

In her determination, Bam said financial services providers and their sales personnel are required to adhere to the code of conduct under the Financial Advisory and Intermediary Services Act, which requires that advice be “adequate and appropriate in the circumstances of the particular financial advice service, taking into account the factually established or reasonably assumed level of knowledge of the client”.

The code also requires the provider, before concluding the transaction, to provide the client with “concise details of any special terms and conditions, exclusions, waiting periods, loadings, penalties, excesses, restrictions or circumstances in which benefits will not be provided”.

Bam notes: “The record shows objectively that the complainant was not advised that she had the right to choose the date of inception, nor the right to object to the date given to her.”

She continues: “I noted from the response that [Discovery Life] simply narrowed the problem to the question of dates. In my view, the late date of inception was borne out of a bigger problem, which was [Discovery Life’s] failure to take the complainant’s circumstances into account when providing advice. These include [her] risk profile, financial circumstances and needs.”

Bam says that Ms M and her husband, who was the breadwinner, had no life cover at the time and had never been covered before, and they had no experience in financial products. She says that although they had taken the step of buying cover, they had little idea of the risks involved in not having it, particularly with two minor children. The assurer, on the other hand, was “alive to the urgency of the situation, knew how the product worked, and knew that, until May 1, [the couple] had no cover”.

The ombud reasoned that had Discovery Life informed Ms M about the fact that cover could be immediate, and had it drawn her attention to the urgency of securing cover at the earliest possible date, Ms M’s husband would have been covered when he died. Instead, it “failed to appropriately apply its mind to the circumstances and recommended a date that suited its administrative purposes … This is the reason [Ms M’s] husband died without cover.”

She ordered Discovery Life to pay Ms M R800 000, which is the ombud’s jurisdictional limit.