There are a number of ways in which payment
can be made under a life policy and different procedures apply
to each.
Death claims
A death claim is normally initiated by the claimant or solicitors
to the estate informing the office of the death of the life
assured and asking for confirmation of the amount payable.
The office will first check its index of lives assured to
discover all the policies on that life. Then the amount payable
will be calculated. This may depend on the exact date of death
– for example, the profits on a with-profits policy
or the sum assured under a decreasing term policy will vary
with the precise date of death. The office will then reply
quoting the amounts payable and stating its requirements for
payment.
The main requirements will be:
Proof of death – death certificate
Proof of age – birth certificate
Proof of title – grant of representation if it is an
own life policy
Completion of a claim form
The proceeds of an own life policy are payable to the deceased’s
executors (if there is a will) or the administrators (if there
is no will). The executors will have to produce the grant
of probate and the administrators must produce the grant of
letters of administration. Executors will distribute the proceeds
as set out in the will and administrators will distribute
the proceeds according to the laws of intestacy.
The proceeds of a trust policy are payable to the trustees
who must use them for the benefit of the beneficiaries. If
a policy is assigned, the proceeds are payable to the assignee
and if it is life of another, they are payable to the grantee.
Maturity claims
All offices have procedures for paying claims on maturity
of their endowment policies. Most offices have programmed
their computers to list out every week the policies maturing
in say eight weeks’ time. These lists are then used
as a basis for the maturity procedure. For each maturing policy
the office will write to the policyholder, say a month or
six weeks before the maturity date, reminding him of the maturity,
quoting the amount payable, listing the requirements for payment
and enclosing the claim form. The aim is to receive all requirements
before the maturity date to enable the office to be able to
release its cheque in settlement to reach the policyholder
by the maturity date.
Surrender
A surrender is when a policy is cashed in before it becomes
a claim. When a policyholder asks to surrender his policy
the office will calculate the surrender value and send out
its surrender form for signature and return with whatever
documents of title are needed.
Paid up policies
If a policyholder can no longer afford to pay premiums he
may request that the policy be made ‘paid up’.
This means that no further premiums are payable and cover
continues at an appropriately reduced level. Only substantive
policies (endowments and whole life assurances) can be made
paid-up - a term assurance will just lapse if premiums cease.
The reduced paid-up sum assured will normally bear some relation
to the number of premiums actually paid as opposed to the
total originally payable. Thus if a 20-year endowment was
made paid-up after premiums had been paid for 10 years, the
reduced paid-up sum assured would probably be half the original
sum assured. Any future bonus would be based on the reduced
sum assured.
Loans
It is possible for life offices to give loans on the security
of their policies. This does not apply to all policies. Loans
will not generally be offered on term assurances or unit-linked
policies. Offices will often only lend on non-linked policies
up to say, 905 of the surrender value, because it is the surrender
value that is the security. Rates of interest charged will
vary according to market conditions.