Budget carefully and follow the rules, to benefit fully from the security that life cover brings

As the cost of living continues to rise and bank lending rates increase, many South Africans are struggling to make ends meet in an ever-tightening economy. Unfortunately, life insurance often takes a backseat in household financial priorities, with only 10% of South African consumers having this essential protection, according to research published by Hollard in September 2022. Affordability is cited as the primary reason for the lack of life cover among consumers.

“An estimated 42% of South Africans do have funeral plans,” says Malose Mabye, Senior Manager Mass Market at Hollard Life Solutions. “It’s important, however, to note that funeral plans are different to life cover. “Funeral policies serve a very specific purpose in assisting your family members to pay for your funeral or that of a deceased loved one. However, the amount to be paid out is unlikely to be enough to support your family for an extended period of time.”

On the other hand, he says, life insurance typically involves a much larger payout, often in the millions of Rands, and is intended to provide support to loved ones in covering expenses and replacing lost income in the event of the policyholder’s death or inability to work. “Despite the challenges posed by a strained economy, understanding the importance of life cover and prioritising it in financial planning can provide invaluable protection for South African families.” Mabye added.

The importance of life cover

The death of a breadwinner can have a profound impact on surviving dependents, causing significant financial loss and uncertainty. However, life insurance can offer consumers peace of mind by mitigating against such losses and providing a cushion in case of unexpected eventualities like critical illness or disability that may leave the breadwinner unable to work.

The importance of life cover was highlighted during the Covid-19 pandemic. According to a report by Research And Markets, titled The Life Insurance Industry in South Africa 2022, nearly two million death claims were paid out during the two-year period from April 2020 to the end of March 2022.

Life cover can be obtained directly from an insurance company or through a broker.

Mabye highlights that when considering life cover, it’s important to consider various factors. “The first thing to ask yourself is exactly what your needs are,” he says. “Seeking further advice from an insurance company or broker can be helpful in making informed decisions.”

“An advisor would be able to assess the consumer’s financial and insurance needs and provide advice on the cover and types of products available from a number of insurers,” he adds.

Mabye explains that when deciding whether to purchase life cover and what type of cover to choose, there are several key considerations to keep in mind. One of the main factors is contemplating the financial impact on the family in the event of the breadwinner’s death. What level of financial support will be needed by the family in the future, and what costs will need to be covered? These questions are crucial in determining the appropriate type and amount of life cover to ensure the family’s financial security in the face of unforeseen circumstances. Seeking advice from insurance professionals can also be valuable in making informed decisions about life cover that align with the specific needs and circumstances of the family.

Budgeting for life cover

In the current challenging economic environment, the affordability of life cover is often a primary consideration for consumers. It’s important to carefully evaluate your budget and determine how much you can realistically afford to pay each month in life insurance premiums.

Amanda Van der Merwe, Senior Manager Corporates and Specialists at Hollard Life Solutions says, proper budgeting will give consumers a clear indication of the potential amount of cover you can obtain from your insurer. “It’s crucial to strike a balance between the desired level of coverage and what fits within your budget to ensure that you can comfortably maintain the policy and protect your loved ones without compromising your financial stability,” she says. “Consulting with an insurance professional can also be helpful in understanding the options available and in finding a life cover solution that meets your financial needs while being affordable in the current economic conditions.”

Van der Merwe explains that there are various types of life cover policies available to consumers, each offering different benefits and coverage options. These include simple life cover, which pays a predetermined amount to the beneficiaries in cash upon the death of the policyholder; term insurance, which provides coverage for a specific period of time as agreed upon in the policy; critical illness cover, which offers protection against specific medical conditions; funeral coverage, which covers the costs associated with burial, formalities, transportation, and meals; and whole life plans, which can be used to pay off debts or provide financial support to loved ones.

It’s important to note that obtaining life cover may differ from purchasing a funeral policy. Depending on the policy, the purchaser may be required to undergo medical tests, and some policies may have exclusions for pre-existing medical conditions, such as diagnosed cancer. Therefore, it’s crucial for consumers to thoroughly understand what is included and excluded from their policies to ensure they are adequately protected and aware of any potential limitations. Seeking guidance from insurance professionals and carefully reviewing policy details can help consumers make informed decisions and choose the right type of life cover that aligns with their specific needs and circumstances.

Understanding the processes

According to Van der Merwe, when purchasing life cover, it’s crucial for consumers to thoroughly understand exactly what is included and what is excluded in their policy. Different policies may have varying exclusions, such as coverage for pre-existing medical conditions.

She emphasises that it’s of utmost importance for consumers to provide complete and accurate information about any current or past medical conditions or medications when applying for life cover. Failure to disclose such information may impact inclusions, exclusions, monthly premiums, and even claims.

According to the Association of Savings and Investment South Africa (ASISA), in 2020, 99.3% of all claims against fully underwritten life policies were paid by South African life insurers, and half of the rejected claims were due to non-disclosure.

“Consumers should be aware of all exclusions, loadings, and waiting periods associated with their life or funeral policies. Understanding these details and how they could affect their loved ones is crucial before making a purchase,” notes Van der Merwe.

There is usually no waiting period where clients have undergone medical testing and prior waiting periods are considered. However, there is usually a standard 2-year exclusion on claims for death resulting from suicide.

In addition to understanding the policy coverage, consumers should also familiarise themselves with the claims process. This includes knowing who to contact, what documents are required, any time limits on the claim, reasons for claim rejection, and how to appeal if a claim is declined. Policy documents, which usually contain information on the type and amount of cover, terms and conditions, exclusions, required documents for claims, and insurer’s contact details, are usually sent within 30 days of the policy being issued. It’s important to keep these documents in a safe place, accessible to beneficiaries when they need to make a claim, Van der Merwe advises.

“The true value of having long-term insurance cover becomes evident during times of crisis. By obtaining life cover, South Africans can mitigate the financial risks during unforeseen circumstances. It’s essential to carefully review policy details, understand the coverage, and comply with disclosure requirements to ensure that the life cover effectively serves its intended purpose,” concludes Van de Merwe.