Life insurer Sanlam has defended its practice of making funeral policy deductions from social grants, noting these deductions are in line with regulations and that the policies are offered to consenting adults. Social grant deductions are one of several payment mechanisms designed to provide “ease of payment and convenience”, as well as access to financial services to policyholders, notes Jurie Strydom, deputy CEO of Sanlam Personal Finance.
In terms of the Social Assistance Act, funeral policies qualify as the only legal deduction against a social grant, provided they are issued by a registered insurance company and do not exceed 10% of the value of the grant.
Following a “clean-up project” by the South African Social Security Agency (Sassa), which administers these grants, to “regularise unlawful funeral premium deductions”, Regulation 26A of the Act was amended earlier this month. In particular, deductions may no longer be made from child support grants, among others, after it emerged during Sassa’s investigations that funeral policies had been sold to the adult recipients of these grants, who were paying for them using grant money intended for the child.
In addition, the beneficiary of the grant must consent to the deduction in writing and submit the consent in person to Sassa or, where such is not possible, make alternative arrangements. The Agency is concerned that written consent obtained by insurance companies from beneficiaries may be fraudulent or ill informed.
Sanlam, however, argues that its policy forms include direct requests from beneficiaries to Sassa that deductions are made. It further argues that Sassa, which holds no financial advice licence, does not have power in terms of any regulations to investigate contracts for funeral insurance taken out by beneficiaries.
While Sanlam says it supports government’s efforts to clean up the grant deductions landscape, it notes in court papers that Sassa has submitted no evidence of complaints from grant beneficiaries that deductions for funeral insurance premiums are unlawful. “The papers are replete with complaints from beneficiaries about unlawful deductions for airtime, loan repayments, electricity and water charges,” Sanlam says. Funeral insurance, on the other hand, offers tremendous social value, Sanlam argues.
The Department of Social Development has recognised the important role that funeral insurance plays in the lives of the majority of grant recipients, according to Sanlam, which cites estimates from the department that poor households can commonly spend more than 15 times their monthly household income on a funeral.
“Funeral insurance enables poor households to provide for funerals in a structured manner that prevents financial ruin in the event of a member passing away. Its social value cannot be doubted,” Sanlam submits in court papers.
Strydom notes that Sanlam respects Sassa’s decision “to withdraw the right of beneficiaries of child grants to make use of deductions from child grants to pay funeral policy premiums”. “The impact of the moratorium on Sanlam’s financial performance is immaterial. Where a policyholder has elected to make use of a social grant deduction, Sanlam does not have access to information on the nature of grant. Sassa has until now not required that a distinction be made between grants that qualify for deduction and those that do not,” Strydom noted. He said that policyholders impacted by the changes would be given an opportunity to make use of alternative payment mechanisms, such as cash and debit orders.
Sanlam is currently engaged in court action with Sassa over the correct implementation of Regulation 26A, which action was recently postponed following the amendment to the regulation.
Sanlam believes that if correctly implemented, Regulation 26A obliges Sassa to make funeral insurance deductions from grants before they are paid into beneficiary bank accounts. This allows permissible deductions to be managed under Sassa’s control, Sanlam argues, removing these deductions from the debit order environment, which is where “defrauding and exploitation of grant beneficiaries occur”, it says.