QUESTION: I have been a policyholder of a friendly society since July 1, 1997. I have never made a claim nor have any of my premiums ever been in arrears over these years. I am on pre-retirement leave and will commence early retirement on April 1, 2015. I made visits to the Ocho Rios and Kingston offices to arrange for premium payments to be made over the counter so as not to lapse my account. Employees at both places said that the life of the policy ends on the commencement of retirement and, most disturbingly, that money paid over the years is not refundable. When I challenged this, the response was: “That’s how insurance is”.

My questions to you are: Can the company refuse my wish to make premium payments over the counter? Can the company simply take my hard-earned funds paid over the years when I am clearly willing to continue my policy and they are the ones reneging on the arrangement? And, can the policy automatically terminate at retirement when it says nothing about retirement?

Persons like me who have sacrificed and invested in this scheme are extremely worried by this information. Can you throw any light on the subject?

– T. R., Lydford, St Ann.

INSURANCE HELPLINE: Part I of this article looked at the origin and history of friendly societies, their connection with the development of the life insurance industry, and the law that governs the operations of those organisations. Quite by chance, another article also appeared in the business section of last Sunday’s Gleaner about the Department of Co-operatives and Friendly Societies. DCFS is a unit of the Ministry of Industry, Investment and Commerce. It regulates friendly societies.

Today’s article will examine the contract between you and the friendly society and answer your three questions.

There are six items listed under insurance in the Yellow Pages of the telephone directory. ‘Insurance-health’ and ‘insurance-life’ are the ones that apply in your case. These listings contain information about companies in the insurance industry that sell life and health products.

The products that you bought are a mixture of accident, health and life insurances. Life insurers sell them separately. Your friendly society, on the other hand, bundles them or offers the three to its members as one product.

Even though the society is permitted by Section 3(1)(ii) of the Friendly Societies Act to “insuring money to be paid on the birth of a member’s child, or on the death of a member”, it is exempted from the provisions of the law that governs the operations of traditional insurance companies, namely, The Insurance Act 2001. This probably explains why it is not listed as an insurer in the directory.

The two certificates of membership that you sent me list the benefits that become payable on the occurrence of certain events. These are accidental death, accidental dismemberment, accidental total disability, or death by natural causes of the member, spouse or dependent.

Weekly benefits are also payable to supplement income in the event of accident or sickness, during hospitalisation and to partially reimburse surgeon’s fees and maternity costs. The benefits resemble those that are offered by traditional life insurance companies.

Friendly societies are owned by their members. They operate solely for persons like you. Because a friendly society does not operate on the basis as a typical company with shareholders, its costs tend to be substantially lower than those of a traditional insurer. Members typically pay premiums that are much lower than those available from life insurers that are required to earn a profit.

Much like traditional insurance contracts, the certificate of membership provides definitions of the words that are used to describe the benefits. The certificate also clearly states the premium members are required to pay and when the coverage ends.

Regarding the latter, it says: “Coverage will expire when the insured or spouse attain age 70, spouse ceases to be a spouse of the insured, dependent attain 18 years of age or, if a full-time student, attains 23 years of age, dependent becomes married or is no longer primarily dependent on the insured for support.”

I saw absolutely nothing in the two certificates that would prevent you from paying the premiums directly over the counter, as opposed to by salary deduction.

Since you will begin early retirement on April 1 this year, it is obvious that you will not have attained the age of 70 by that time. Therefore, you may continue to pay the premiums which the society will be forced to accept until then.

Finally, given the wording in the certificate, if you have not made a claim by the time you have reached 70 you will not be eligible for a refund of the premiums that you have paid over the years.

Unlike a typical life insurance contract – which your coverage is not – your coverage does not accumulate a cash value.

n Cedric E. Stephens provides independent information and advice about the management of risks and insurance. For free information or counsel, write to: aegis@flowja.com.