Things not to do when taking out Life or Disability Cover

Life Cover don'ts in South Africa

The purpose of taking long term insurance is to ensure peace of mind in the event of trauma or death. the last thing you want is for payment to be delayed or worse yet the claim denied completely.
Making sure that your claim is paid requires a little more than just making sure that your premiums are up to date.

For your cover to remain valid you need to comply with the requirements of the policy as this is a huge reason for claims not being paid but luckily this is not hard.

1. Not disclosing all relevant information on your policy

Intentionally withholding or giving false information to your insurer is a violation of your policy rules and can result in all claims being rejected.
The policy holder should clearly disclose all previous medical conditions and any other details whether they feel its relevant or not and many people have not been paid due to wanting to hide information in order to get a lower premium.
Its much better to disclose everything and get paid when the event occurs than to pay a lower premium and get nothing.

2. Taking out less Life or Disability Cover than you need

Financial peace of mind regarding your family when you die is the goal in terms of life cover and being able to maintain your lifestyle in the case of disability is the goal of disability cover- dont forget this 
A budget is required to see exactly what your needs and the needs of your family is as well as expenses when deciding on the level of coverage needed. Your cover requirements need to be revised as your circumstances change and at the very least should take the effects of inflation into account.

3. Not letting your Advisor know you changed jobs

A change in job activities can effect how much your Life Cover or Disability Cover costs (this is risk remember) and if your job becomes more dangerous you may need to pay more and the need for these types of cover increases too. The good news is that if you move from a manual or dangerous job to a more administrative position you can attract lower premiums.

4. Keeping your cover a secret

Not telling those you love where they can find your documentation if an insured event happens can be disastrous as there is a possibility they may never claim when the need for such cover arises. It is therefore advised that you should let your loved ones know where your documents are and who should be called if an insured event occurs

5. Not Claiming in time

Nearly all claims have a specified time during which an application for a claim benefit must be made. This is one of the most common reasons that claims are not paid. Claimants often forfeit benefits if they delay starting the claims process or delay in providing the needed documents. This can be closely related to the keeping your cover a secret heading above

6. Neglecting to Update your Beneficiary list

Your Insurance Company will always pay as per the nominated beneficiaries on your policies.
You should take care to change beneficiaries as required as per divorce; new family members etc.

7. Withholding information at claim stage

Ensuring that the insurer is given full accurate information and documentation will speed up your claims process significantly. Conflicts in the information will slow this process to seemingly a crawl with identifying information like ID numbers this is especially important.

8. New risk Non Disclosure

Starting a new hobby or activity that is dangerous or just starting to smoke can raise your premium. Not disclosing these can lower your payout or maybe they may not even pay at all.

9. Ignoring the exclusions

The circumstances under which a policy will not pay is very important. Standard exclusions on most policies will include illegal substance use and breaking the law

10. Allowing the insurer not to pay

If for any reason you feel that the insurer is being unfair by not paying take it up with them. Most insurers want to pay your claim- its good business. If you feel that you have a valid claim and the insurer does not honor it take the case to the ombudsman. That being said the responsibility for understanding the conditions of your policy lies with you so read  your documentation and let your advisor explain anything you don't understand.

Your Life Insurance needs will Change as you Change

In South Africa people are generally adverse to taking policies such as Life Cover unless they absolutely need to. The article below attempts to let you know exactly what your needs may be at different stages of your life.

The younger you are you typically have less need for Life Insurance but it is also easier to get a very low premium as firstly you are young and secondly the chances of your health negatively influencing your premium is also less and many companies will not re underwrite you after the initial underwriting when you take out your policy. When you grow older your need for life insurance increases as you've taken on more responsibility but after a while your responsibilities will  diminish again meaning that your need for life insurance is likely decrease again. It is important to remember that the older you are the more your life cover will cost generally speaking.

Young and Carefree

As a young person; you become independent and can take care of yourself, you no longer depend on your parents to support you financially and in the majority of cases a financial hardship will not be created should you die at this point. For most young and single people  Life Insurance at this point is not all that important.

At this stage taking life insurance may become more important if you are at risk of developing a disease such as Cancer or Diabetes later on in life as you may be refused Life Cover or at least your premiums will be considerably higher once these eventualities take place.

If you have taken a home loan and you have someone who has cosigned this your death would leave that person responsible for the entire debt. You would be wise to purchase enough Life Cover to cover your home loan in the event that the worst happens.
Funeral cover is most times not required as you can take a life cover that pays out an immediate expense benefit in the event of your death to cover the funeral; this is a smaller amount paid from your Life Cover benefit usually within 48 hours of receiving death documentation.
 You will be in more desperate need of Life Insurance if you are supporting a parent or grandparent and as well as if you have a child as they would need financial support in the event of you passing away.

Tying the knot

 If a young married couple contribute equally to household and have no children they typically have little need for Life Cover as the death of one partner may not be a financial catastrophe for the other. Once you buy a home however this whole scenario changes as the death of one partner may make it impossible for the other to pay the bond by themselves; even if both have high paying jobs. A moderate amount of Life Cover in this case on both lives is considered to be the minimum consideration to be taken as it will at least provide for peace of mind that both you and your spouse is covered should the worst happen to either.
 Once again if you caring for parents or children before marriage this situation becomes even more dire.

Growing your household

With the pitter-patter of small feet comes huge increases in responsibility and therefore huge increases for the need for Life Cover. The need for Life Cover for both spouses cannot be over stated at this point.
If your home has a single income the family is completely dependent on the bread winner and if the bread winner is without Life Cover the consequences is likely to be devastating. life cover will also be needed on the life of the stay at home partner as provision will need to be made for expenses like after-care; daycare and other living changes.

In double income homes the need for Life Cover is just as important as the surviving spouse may not have the income to meet all the household needs by themselves.

A mover and shaker

Career advancement often means moving employers or even starting a business it is very important to call your financial advisor whenever this happens as a review of your financial plan will need to take place immediately. Your advisor will look at what your options are considering employer benefits and your underwriting needs should you make certain choices. You may end up paying a lot more for coverage now due to age and pre-existing conditions.
Starting a business has its own issues due to whether you were married in Community of Property or not as well as the fact that you don't want your family penniless due to business debts should you pass away.

Dissolution of Marriage

You and your partner may be together for only a while instead of forever and this obviously brings about issues of whom the beneficiaries are and it only gets more complicated if you have children.

In retirement

In most cases here the need for Life Insurance diminishes again due to less people depending on you and homeloans being paid off. However; this is not always the case as you might still have debts or a partner who no longer enjoys your annuity income or even estate duties in which case the need for moderate Life cover still exists

Characteristics of a Good Financial Advisor/Planner in South Africa

Generally if you are looking for a Financial Advisor or Planner you will be looking for the following

1. Trustworthiness
 In any relationship trust is of critical importance and your Financial Advisor/ Planner will be walking a long road with you to assist in most of life's changes because different life changes happen your Advisor/Planner should be informed to assist and make clear what impact these changes will have on your investments and financial future in short your Advisor /Planner should be as close to you if not closer than your life partner.

2. Great Communication Ability
Your Advisors/Planners ability to communicate complex financial issues in clear; plain and concise words is very important to you as you don't want him or her to speak and you not understanding any part of your financial plan.

3. Ability to educate you
Role of the Advisor/Planner is not simply to sell you an offering but to raise your conscious understanding of your financial situation.

4. Advisor?Planner must be qualified
Gone are the days when just anyone can be an Advisor the FSB has put experience and educational responsibilities on all Advisors and Planners (Those representing the larger will most certainly be compliant in this regard)

5. Ethical Responsibility
All Advisors/Planners are required to adhere to strict ethical codes and have to work in the best interest of their clients.

6.Experience Requirements
Advisors and Planners generally work about 2 years under supervision to ensure that you the client always have the peace of mind that even if your Advisor/Planner himself/herself is not that experienced their activities and  advice is supervised by a veteran of the industry.

Additional considerations when choosing a Financial Advisor /Planner in South Africa

1. Licensing with the FSB
The FAIS Act makes it mandatory that your Advisor/Planner is licensed with the FSB (Financial Services Board) or is working under supervision of a Licensed FSP(Financial Services Provider) once again working with one of the larger insurance houses will take care of this.

2. Employer
Working with a larger insurance company obviously has the advantages of stability and peace of mind that the  Company has the resources to take care of you when the time comes for them to fulfill their promises.

3. Indemnity Insurance
Professional Indemnity Insurance protects the client should the Advisor/planner have a claim made against him/her for bad judgement or negligence.

4. Services
A holistic view has to be taken of your Financial Needs  and therefore its important to go with an Advisor/Planner who has the backing of a corporation with the experience and expertise  to take of your Full Comprehensive Financial Needs through all life stages

5. Remuneration
An Advisor/Planner can  be paid via a commission; professional fees or a combination of the two. Those paid on a commission have an additional incentive to make sure that you the client are well taken care of as they may have penalities and commission claw backs if everything not 100%

When you decide to meet an Advisor/Planner be sure to ask any questions relating to any of the above ; you are encouraged to ask as much questions as you like and a good Advisor/Planner will have these on hand  for you. Please stay clear of of any Advisor/Planner who refuses to be totally forthcoming.

Why do I need to start saving for my retirement while I’m young?; I may die before I get there.

This is true but you also may not; in fact recent studies show that the Life Expectancy rate may be as high as 92 years old and with advancements in Medical Science who knows how high life expectancy may be when you get older.

In  South Africa  9 out of 10 people will retire without sufficient retirement funds and relying on your company provident or pension fund is just not going to cut it

The problem is not in how long you live but in how much provision has been made in the event that you do live long. Nobody wants to be begging the Government for an income for three decades after working for 40 years. Who wants to be a burden on their children and grand children just because they did not make adequate provision for their retirement years when they should have

.

The South African government has incentivised saving for your retirement by allowing you the greater of 3 different tax rebate structures

·         15% of non retirement funding income is great for people who work regular overtime as overtime is not calculated in your pension or provident fund calculations

·         R3500 less pensionable deductions (contributions)

·         Or R1750

What this means is that if you do not have an RA you can contribute at least R1750 to an RA per year and get it all back and for those with non pensionable income like a part time business or overtime or interest income they can even contribute more and get a big part if not all back.

If you going to pay tax does it not make sense to use that tax to your benefit or at least get it back making your portfolio worth more than if you had to invest with after tax money?

Let’s look at some calculations

For simplicity we assume that no one increases their contributions at anytime in their period (this would dramatically increase compound interest and fund value) and would make differences even larger. We also assume a constant growth rate of 7% and we assume the lowest rebate you can qualify for as our yearly rebate we also do not take any charges or fees into account

Name	Tony	Abigail	John	Sue	Mary	Tom
Age	20	30	40	20	30	40
Years  to retire	45	35	25	45	35	25
Invest Monthly	R150	R150	R150	R600	R600	R600
Assumed tax rebate	R1750	R1750	R1750	R1750	R1750	R1750
Total contributed	R81000	R63000	R45000	R324000	R252000	R180000
Less combined rebate	R78750	R61250	R43750	R78750	R61250	R43750
Actual contributed	R2250	R1750	R1250	R245250	R190750	R136250
Fund value at retirement	R568 215.75	R270 851.72	R122,294.87	R2,272,863.00	R1,083,406.88	R489,179.48
Monthly Annuity for 30 yrs	R3566.23	R1699.91	R767.55	R14264.94	R6799.68	R3070.19

Because of the effects of compound interest it becomes clear that the earlier you start contributing and the more you can put into your fund the higher your fund value will be its interesting to note that in the example Tony started at age 20 paid in R81000 but got R78750 back and in reality only contributed R2250 but got a higher fund value and therefore monthly annuity than Tom who paid R180 000 and only got R43750 back and therefore in reality paid R136250 imagine Tony had added his tax rebate as a yearly lump sum as well as his monthly contribution or increased his contributions with inflation it now becomes easy to see why starting early is the key to financial success at retirement.

When you retire you are allowed to take up to a third of you fund value as a lump sum with the first R315000 being completely tax free and taxation tiered upwards the more you draw. The remaining two-thirds must be used to buy annuity income.

A decent fun filled retirement is possible if you plan for it now; you may still not drive one of these

but you can be sure that you will never need to eat cat food