Denise Gabriels, Lead Ombud of the Life Insurance Division of the NFO

Income protection cover is meant to be a lifeline – a safeguard against the financial shock that strikes when illness or disability prevents you from working.

But the experience of one consumer of income insurance shows how fragile that lifeline can become when the wording of a contract is unclear.

A case study in the annual report of the National Financial Ombud Scheme (NFO) shows that even when an insurance company pays income protection benefits consistently for years, those payments can later be dismissed as “errors” if the written terms are ambiguous or contradictory. Trust and practice are not enough – the enforceable promise lies in the fine print.

When Mr G signed his income protection policy in February 2007, it felt like a shield against life’s unpredictability. The contract promised him R45 000 a month if illness struck resulting in his inability to work, with the comfort of knowing his benefit would grow by 10% each year. By April 2007, the policy was active. By July 2007, illness forced him to claim. His claim was approved, with the first payment made on 22 July 2008.

For 11 years thereafter, the insurer honoured that promise. Each year, without fail, Mr G’s benefit climbed by 10%. It was a rhythm of reassurance, a steady rise that matched the words he had read and the trust he had placed in the company.

But in 2019, the insurer abruptly declared that those increases had been a mistake. According to them, the contract only allowed increases linked to inflation or Consumer Price Index (CPI), capped at 10%. The decade of fixed increases, they said, was nothing more than a system error. Mr G complained to the Ombud.

The dispute quickly became a test of law and trust. An independent legal opinion was obtained addressing both quasi-mutual assent (reliance theory) and the contra proferentem rule as alternative grounds for holding the insurer liable to pay Mr G a 10% annual benefit increase.

Quasi-mutual assent is a contract law doctrine where the law infers a binding agreement because one party acted in a way that led the other to reasonably believe they were assenting to a contract. The contra proferentem rule is a legal principle stating that if a contract contains an ambiguous term, it must be interpreted against the interests of the party who drafted it. The rationale is that the party who wrote the contract or introduced the vague clause had the power to make it clear. By construing the ambiguity against them, the law penalizes sloppy drafting and protects the party who simply had to accept the contract.

Under the reliance theory, Mr G had every reason to believe the insurer’s word: the quotation promised 10%, the policy referred to 10%, and the company had paid 10% for more than a decade. Under the contra proferentem rule, any ambiguity in the contract had to be read in favour of the customer. And the wording was undeniably contradictory – one line promised 10%, another tied it to CPI.

The Ombud agreed with Mr G. It ruled that the insurer must continue paying the fixed 10% annual increase, confirming that both reliance and ambiguity worked against the company. For Mr G, it was vindication: the promise he had trusted was upheld.

But the insurer appealed. And on appeal, the Tribunal took a harsher view. Yes, the clause was poorly drafted, but it could still be interpreted sensibly: post‑claim benefits were meant to rise with inflation, capped at 10%, not at a fixed rate. The Tribunal said the contract distinguished between “voluntary benefit increases” (which applied before a claim, linked to higher premiums) and post‑claim increases (meant only to protect against inflation). The insurer’s 11 years of payments, it said, were errors, not binding promises.

The appeal was upheld. Mr G’s future benefit increases were limited to CPI, capped at 10%. Although the certainty he had lived with for over a decade was rewritten as a mistake, the insurer did not recoup any overpayments and based future increases on the inflated income, thus still benefitting Mr G.

Denise Gabriels, Lead Ombud of the Life Insurance Division of the NFO, said: “Consumers must protect themselves by reading carefully, documenting promises, monitoring payouts, and challenging discrepancies early. Trust is valuable, but in insurance, vigilance is essential.”

Gabriels offered the following advice for consumers of insurance products:

• Scrutinize policy wording – Read every clause carefully, especially around benefit increases, exclusions, and definitions. If you see contradictory terms (e.g., fixed percentage vs CPI‑linked), insist on clarification before signing.
• Get written confirmation – If an insurer promises a fixed increase or benefit, demand explicit written confirmation. Verbal assurances or sales quotations are not enough in disputes.
• Seek independent advice – Consult a broker, financial advisor, or lawyer to identify ambiguities or risks in the contract. Professional eyes can catch what consumers may overlook.
• Challenge discrepancies early – Use escalation channels like the NFO’s Life Ombud promptly if benefits don’t match the contract. Early disputes are easier to resolve than entrenched practices.

Gabriels said Mr G’s journey with income insurance is more than a dispute over percentages – it is a reminder that financial protection must be actively managed, not passively trusted.

“Contracts can be complex; systems can fail  and understanding of promises can shift. What endures is the consumer’s responsibility to stay informed, to question, and to safeguard their own future. Income insurance can still be a lifeline when work is no longer possible, but only if vigilance and clarity are woven into every step of the journey,” she added.

ENDS