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Life Insurance- Red Flags

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The Reality behind the headlines

The recent controversy over Momentum’s repudiation (decline) of a violent death claim on a life policy because of an unrelated, undisclosed medical precondition has kicked a hornet’s nest of opinions, so I thought it was a good idea to expose some of the potential pitfalls in life cover and investment that you may not be aware of and could lead to claim repudiation or investment loss.

The term non-disclosure applies right across the board, from medical aids and gap-cover, short-term insurance and life cover. If you have been to the doctor for anything – even if the medical professional considers it nothing, disclose it or it will come back to bite you.

Medical aids very few options to exclude ‘risk’ from their membership – all they can do is a 3 month waiting period and a 12-month condition specific exclusion – and they enforce that rigorously. I have come across cases of hospitalisation for bronchitis excluded because a cold was not disclosed in a child. In the small print of your application you will have given them the right to investigate your medical history so put in every medical practitioner’s visit, no matter how minor. Any claim made in the first 3 years of a life cover is almost always investigated, thereafter it is only usually if they have their suspicions. Gap covers are governed by different regulations but the same 2 exclusions/waiting periods apply. Just a word of warning, think very carefully before changing gap covers because you might just restart the 12-month exclusion clock. You are under no obligation to disclose whether or not you have a gap cover to a medical practitioner – and there have been instances of practitioners increasing prices to match the gap cover.

When you are taking out short-term (car house etc) you are always asked about your claim history and whether or not you have had any accidents (unsaid – whether you claimed for it or not). Just because you didn’t claim, doesn’t mean you aren’t supposed to disclose. You are also asked if any claim has been refused/repudiated. Don’t fudge this either, even if you’re disputing this or taking it to the ombud.
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Medical Risk – Time for a rethink

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Your biggest medical risk? The NHI (National Health Insurance)

As if it wasn’t enough that Medical Aid premiums have been consistently increasing well above inflation for years, the National Health Insurance (NHI) government proposals that have been on the backburner for years are now a hot topic. Why now? For a start it is a popular move that will play well to the voting public (with elections less than 2 years away), secondly there is a perception that, with the billions being thrown at SAA or SABC, there is spare cash floating around (especially if they start tapping into the PIC – government pensions.) Of course, the NHI also has its eyes on the R20bn in medical aid tax credits given to us taxpayers, and it is quite possible that this is going to disappear – as soon as the next budget in February 2018. This R20bn is actually a drop in the ocean – in 2010 the cost of the NHI was estimated at R450bn pa (for cover equivalent to the Government Employees Medical aid known as GEMS). It may take another year or two before the NHI becomes compulsory, and it will likely start as a ‘lite’ version but it makes sense to start anticipating it now and aligning your costs accordingly.

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Taking the Grudge out of ‘Life’ Insurance

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Knowledge is power

The Life Insurance industry has tried very hard to shake off the stigma of the past. The products have improved, costs come down and the advice jacked up (thanks in part to much stricter regulation). It has also become highly competitive and diversified, making it almost impossible for the man in the street to make an informed choice, relying on a Trust Advisor to help them with that. The new regulations, the ‘Retail Distribution Review’ (RDR), is going to protect consumers even more, but it is also going to force lower income consumers to do it themselves via Call Centres or direct sellers, as Brokers, Advisors and Planners decline to do ‘small’ policies because the remuneration just doesn’t even cover the costs.

There is another issue, money is tight and everyone is shouting “Pick Me” trying to get their hands on your disposable income, insurance salesmen and investment specialists among them. Cutting through the bull that you’re bombarded with in SMSs, Social media ads and TV commercials that lure you in with statements like “all your premiums back if you don’t claim”, “cut out the middle man and save” or “get R1m life cover for R1 a day”. (All the claims are fundamentally flawed if you read the small print – but that’s another story). Life cover is one of the ultimate grudge purchases, but most of us do it because it is the responsible, grown up thing to do, and we just keep on doing it. This is an important decision, if you make the wrong choice you may not be able to change it if you’ve had any event ( even a relatively minor car accident) that will impact your insurability. Is it money well spent – and should it be for life?

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Life Cover Hacks

in Disability, Dread Disease, Financial Advisory, Life cover Leave a comment
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Secrets from an insider

‘Life Cover’ is probably one of the major grudge purchases a working age adult will make, and once you start adding other benefits it can become really pricey. Here are some hints and tips so you can make sure you’re getting what you expect, without paying the earth now – or in the future.

‘Life Cover’ insurance is made up of 3 major components – Life, Disability and Dread Disease but is all classified as ‘life’ cover because the insurance company has to have a ‘life license’ to offer them.. There are a few ancillary benefits like funeral cover, retrenchment cover etc., but these are all still classified as ‘Life Cover’. This might sound like semantics but some gap covers have fallen foul of this definition and are having to remove ‘life’ benefits like cancer lump sums.

Actual ‘life cover’ – cover that pays out if you die, need not be for life. If you take it for a defined period (called ‘termed cover’) and not for life you will be able to save money. First prize is if you can increase this without underwriting at a later stage if you still need it.

At the very core Life cover should cover your debts, liabilities plus the cost of getting your children financially independent. If you have agreed to allow your life partner to be a financial dependant on you for life, then his/her costs for the rest of their life needs to be factored in too (and you may need cover ‘for life’.) If you don’t keep on increasing your debt (smart), life cover should decrease and not increase every year.

Life cover is pretty simple, either you’re dead or you aren’t. Dread disease is slightly more difficult but there are now global standards of severity. Disability is a nightmare – be very careful which provider you choose. (Use an Independent Financial advisor who can get you a variety of quotes from different providers).

It is possible, in fact often preferable, to use different providers for the different ‘life’ benefits so that you get the ‘best of breed’.

Life cover can be bought purely on cost, as long as there are no nasty surprises in small print (read the general and specific exclusions paragraph carefully before signing.) When getting comparative quotes ask for projected premium increases on level or age-rated premiums and compare them side by side or graph them. The differences will shock you. By all means get a quote from a call centre life company – their premiums are usually a good 20% above the lowest premium from one of the big providers (and almost always age rated). Someone has to pay for all those TV ads – don’t make it you. Always get a comparative quote if you’ve decided to DIY and read all the small print and graphically plot the premium increases.

If you’re lured by the ‘cash back’ promises of some Life companies be aware that this is not free. Get a quote before and after the ‘cash back’ and compare it to investing the money yourself. Remember, if you cancel the cover or have to claim you lose that benefit, if you’ve invested it you won’t.

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Dangerous Assumptions – Group Risk

in Disability, Group Benefits, Income Continuation Benefit, Life cover, Permanent Disability, Temporary Disability Leave a comment
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When a financial planner looks at your risk (life/disability/dread disease) needs, he or she is supposed to take your group risk cover into consideration when making recommendations and in effect assume that you are adequately covered. This can be a dangerous assumption and leave you or your family badly exposed when it comes to claim time.

Life cover itself is fairly uncomplicated. Clearly you either are dead or you aren’t. Ditto funeral cover. If you’re really unlucky and have been killed at the wheel of a car when you’re drunk or by hitting your head on the bottom of a fountain after a (not so hilarious) night out with the boys then some of the insurers might baulk, but on the whole, life cover is life cover, wherever you go and however you get it. Just make sure that it isn’t ‘accident cover’ only. That is a cheap and nasty subset of life cover that only pays out if you’re in an accident, not if you have heart attack or any other less spectacular exit plan.

Dread disease on Group Risk cover is less common, but where you do find it is usually a ‘severity based’ product paying out a percentage of (what is normally) only one year’s salary. In other words at stage one cancer, (when most cancers are detected) your payout will range from 0-5%-25%. Dread disease cover is an increasingly important part of medical risk cover (see my blog HERE) but is expensive and falls a way down on your list of priorities.
Group Disability cover is the biggest concern. Ninety percent of the group Disability cover, especially permanent disability cover, is appalling and quite frankly not worth the policy paper it is written on. Why? As per usual, it is in the small print. Do yourself a favour, ask for the full Group policy document before downgrading your personal cover in favour of group cover.

Look for wording like “…if, in the opinion of x provider” (what happened to objective international standards?).

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The rise and fall of direct insurance?

in Life cover, Short term Insurance Leave a comment
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Valuable Service or worrying trend?

Over the last decade we have all watched in awe as direct insurers have grown to become massive companies. The change in advertising spend over that time has been very interesting, in every medium. Groceries have been mostly relegated to junk mail and inserts, ditto IT companies. The unsecured loan industry had their day in the sun (when did you last see a Wonga advert?) until the African bank fiasco opened that can of very noxious gas over that grubby market. (Interestingly adverts from that sort of company still dominates the UK TV with APRs (Annual Percentage Rate) of 1000%!). Direct insurers take up a chunk of premium TV airtime (just one of them is estimated to spend R400,000,000 pa)– but have they seen their heyday?

The biggest threat to the direct insurers is that their premiums creep up to a level that they are no longer the ‘cheapest on the block’ (this is already happening) and then as time goes by and those client actually have to claim they find out the value of an intermediary over a huge company and anonymous call-centre agent who has a mandate to pay as little as possible. It is much easier for some salary paid employee to say “sorry for you” than a short term broker that has built up a relationship with you and will help you fight the insurer to get what you are due and isn’t perversely incentivised to ‘minimise the claim’.

The direct model was never going to be cheaper. Those massive marketing budgets and call centres have to be funded. Commission by any other name is the same thing when it costs as much. At least commission feeds an entrepreneur whose success is tied to your success, not a fat cat corporate who pay minimum wage, do the bare minimum of training and re-distribute the premium to lawyers and retention agents who will wear you down before letting you cancel. They might have been able to golden-handcuff clients with bonuses, but as soon as those are lost due to a claim and then to add insult to injury they are screwed over during the claim, they start looking around.

Even in short-term insurance, the ‘brokers’ of old have wised up. We’re living in an era where service is a valuable, sought after asset. Yes, it is easy to insure a tangible asset like a car or house, they can be easily valued and usually easily replaced, but it takes a human to understand that with every loss of an asset there is a very real hurt, even trauma. Unfortunately too many of us have first-hand experience of this. A home invasion or hijacking will alter you forever. Even a burglary will leave you feeling vulnerable and violated. This is often where a direct insurer will come short. Call centre agents are usually young, inexperienced, poorly paid and not recruited for their people skills. In the last 18 months I have not been able to get a short-term quote for a client from a traditional short-term company that hasn’t beaten a direct company and given better terms. The service is an added bonus. If the direct insurers have done nothing else but make premiums more competitive then it’s a service to all of us.

You’ve probably noticed that those direct insurers have now turned their focus on the ‘life’ industry. Even Vodacom now flogs life insurance. Your life, on injury or death is not a commodity, but it is possible to reduce it to a number. Using a handful of questions (which they usually dispense with BTW) you can determine a person’s basic life cover needs, so you can see why direct insurers are now moving their focus into this arena. They are still small at the moment, but I predict that they are going to become a dominant force on our landscape. Why?
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