More to life cover than just death

Many people assume life cover is a simple policy, taken out to provide for dependents after death. Those without dependents need not bother.

Nothing could be further from the truth.

“Even young single people without dependents could become ill or disabled, preventing them from being able to work or earn an income,” warns Adriaan Beumer, actuarial specialist at Hollard Life Solutions. “This is why it is so important to understand life cover as more than just a death benefit.”

Instead, life cover should be seen as part of a “broader stable of insurances including income cover, disability cover, critical illness cover, funeral cover and long-term care”, adds Matthew Curtis, an actuary at Hollard Life Solutions working on enablement and technical marketing.

In short, there is a lot that can go wrong: many of the illnesses or conditions that killed people a generation ago are now treatable, but they may have unforeseen consequences that prevent people from working and earning an income.

Statistically, employees are more likely to be diagnosed with a critical illness than dying during their working life. A non-smoking man aged 40 is over four times more likely to be diagnosed with a critical illness than he is of dying before the age of 65, according to 2018 data from Pacific Life Re. Such a life-changing illness can significantly impact the ability to work, reducing, or stopping altogether, the ability to earn an income.

As for disability, “it is important that people understand the range of covers that they need in the event of critical illness or the permanent impairment of faculties preventing work and the earning of an income”, advises Beumer.

Critical illness, disability or income replacement cover can be built into a life policy, providing a financial pay-out in the event of being diagnosed with a critical illness or becoming disabled and losing one’s income during the term of the product. “This means that if you are diagnosed with any condition named in the policy, you can concentrate on recovering, rather than worrying about whether you can pay your bills”, says Curtis.

While critical illness or disability covers do not replace medical cover, unlike medical policies, they are specifically designed to cover things like rent, mortgage payments, utility bills, loans and debt, food, school fees, home modifications – such as the addition of stairlifts or ramps – and many other daily living expenses not covered by either traditional medical or standard life policies.

The best way to understand how to structure life cover so that it meets your real risks – no matter how young, fit or single you are – is to talk to your insurer or broker.

“Insurance professionals can advise on how much money you will need in the event of disability, how long it takes to recover from or to treat certain conditions, what exclusions you can live with – and what you shouldn’t exclude,” advises Curtis.

Understanding exclusions is particularly important when comparing insurance policies. Some companies, for example, apply suicide exclusions while others do not. Similarly, some policies will not pay out if death or disability occurs as part of criminal activities or riots.

So, while understanding the difference between semi or fully underwritten life policies is important, it is not the full picture. “Having a semi underwritten policy for which you had to answer a handful of simple questions to secure a R1-million pay-out in the event of your death or a fully underwritten policy requiring a medical history and independent medical examination to secure a R15-million pay-out when you die, is immaterial if you are bedridden for 15 years,” cautions Beumer.

Not everyone understand that covers are optional, and that people can very easily mix-and-match them to suit their specific risks and responsibilities.

“Talk to your insurers. They are there to help,” urges Curtis. “It is not enough to listen to what the sales agent is saying. Policy holders should also read the full content and understand the detail of the terms of their policies. Since this can often be confusing, they should not be shy to ask what things mean or to discuss their risks and concerns with their insurer, making sure that nothing has been missed.”

A tragic event such as death can have a devastating impact on surviving dependents, particularly if the deceased was a breadwinner. Life insurance mitigates against the larger financial loss and provides cover and a cushion in the event of unexpected eventualities such as critical illness or disability which may render one unable to work. This ensures that the risk is spread and managed against a potentially larger financial loss, Beumer advises.

“Fortunately, understanding what you need and how to build these covers into a single comprehensive life policy that actually covers you for the full range of your real risks is only a phone call away”, concludes Curtis.