This blog was co-authored by William Hayne, Candidate Attorney.
In September 2024 the High Court found that the policy wording and section 54 of the Long-term Insurance Act of 1998 allowed the policyholder to either cancel her investment policy as a whole or make a partial withdrawal but not both.
The policyholder had invested her inheritance with the life insurer, with the policy to run for five years. Shortly following the conclusion of the contract, the policyholder requested and was paid a partial withdrawal from the investment.
Within a year, the policyholder requested a second partial withdrawal, which was declined by the insurer. Consequently, the policyholder demanded that the contract be cancelled and that the funds still remaining be returned to her. This request was refused.
The policyholder instituted proceedings seeking an order that the contract be cancelled and that the balance of the funds be returned.
The crux of the policyholder’s argument was that she had entered into a contract with the insurer in terms of which the insurer undertook to invest the funds for five years and to pay back the same with interest following the lapse of five years or at any other time upon demand. By refusing to pay back the funds, the insurer had allegedly breached the contract which entitled the policyholder to cancel the contract.
The policy provides that “if you only partially cash in your policy before [the maturity date], you are not allowed to cash in again before this date”. The insurer referred the court to s54 of the Long-term Insurance Act and Long-term Insurance Regulation 4.2.
Section 54(1)(a) provides that a life insurer may not undertake to provide policy benefits under a life policy otherwise than in accordance with the requirements and limitations set out in the regulations. Regulation 4.2 provides that a long-term insurer must not undertake to provide, or provide, a benefit under the policy during an extended restriction period if the policy has previously been partially surrendered during the extended restriction period. In this case the restricted period was five years.
Accordingly, the court dismissed the policyholder’s claim.
The court held that the policyholder had an opportunity to either cancel the contract as a whole or request a partial withdrawal. The policyholder chose the latter. Had the insurer allowed the policyholder to make a second withdrawal or cancel the contract following a partial withdrawal it would break the law.
The Regulation is in place to prevent insured persons treating insurance companies as deposit-taking institutions.