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Settlement option under a life insurance policy
19 Feb 2014 (98 views)  

A consumer asked my views regarding the settlement options contained in his life insurance policy. The wordings of the option is contained below.

The consumer wishes to exercise one of the options on the surrender of the policy, but the insurer had replied to him that they had ceased accepting the options and have the contractual right to do so, based on the wording of the option, "Upon written election made to and accepted by the Company ..".

I gave my views as follows:
 

SETTLEMENT OPTION

Where an insurance company provides settlement options to the policyholder, the usual practice is for the settlement option to be elected by the policyholder and does not contain the right of refusal by the company. These options are part of the long term guarantee provided by the company.

If the company wishes to have the right of refusal, they should state it clearly in the wordings. Words such as "The Company reserves the right to refuse a settlement option on the following grounds ..." can be used.

Without a specific right of refusal that is clearly stated in the policy wording, it is unreasonable for the company to reject an option elected by the policyholder or to withdraw all the settlement options entirely.

In an extreme case, the company could have quoted an extremely high rate of interest for the settlement option to entice a policyholder and add the words "on acceptance by the company" to reject the option. In most cases, the time for exercise of the option is many tens of years after the issue of the policy.

When the company provides an option to allow the settlement to be withdrawn in installments with an interest rate of 4%, they are giving a long term guarantee, similar to the guarantee that is built into the calculation of the premium and benefits of a life insurance contract. There is a reasonable expectation from the policyholder that the settlement options will be honored as part of the guarantee

The wordings in the contract, "on acceptance by the company" could be interpreted as an acknowledgement by the company that the option has been elected, rather than a right of refusal given to the company.

I advised the consumer to file a complaint to FIDREC (www.fidrec.com.sg) and gave him a letter containing my views. 

Tan Kin Lian

 



Settlement option under a life insurance policy
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A consumer asked my views regarding the settlement options contained in his life insurance policy. The wordings of the option is contained below.

The consumer wishes to exercise one of the options on the surrender of the policy, but the insurer had replied to him that they had ceased accepting the options and have the contractual right to do so, based on the wording of the option, "Upon written election made to and accepted by the Company ..".

I gave my views as follows:
 

SETTLEMENT OPTION

Where an insurance company provides settlement options to the policyholder, the usual practice is for the settlement option to be elected by the policyholder and does not contain the right of refusal by the company. These options are part of the long term guarantee provided by the company.

If the company wishes to have the right of refusal, they should state it clearly in the wordings. Words such as "The Company reserves the right to refuse a settlement option on the following grounds ..." can be used.

Without a specific right of refusal that is clearly stated in the policy wording, it is unreasonable for the company to reject an option elected by the policyholder or to withdraw all the settlement options entirely.

In an extreme case, the company could have quoted an extremely high rate of interest for the settlement option to entice a policyholder and add the words "on acceptance by the company" to reject the option. In most cases, the time for exercise of the option is many tens of years after the issue of the policy.

When the company provides an option to allow the settlement to be withdrawn in installments with an interest rate of 4%, they are giving a long term guarantee, similar to the guarantee that is built into the calculation of the premium and benefits of a life insurance contract. There is a reasonable expectation from the policyholder that the settlement options will be honored as part of the guarantee

The wordings in the contract, "on acceptance by the company" could be interpreted as an acknowledgement by the company that the option has been elected, rather than a right of refusal given to the company.

I advised the consumer to file a complaint to FIDREC (www.fidrec.com.sg) and gave him a letter containing my views. 

Tan Kin Lian