Life insurance: know what you signed up for
Durban - Let’s face it: many of us don’t understand the details and terms of our life insurance policies. Apart from the fact that you could be insuring the wrong risks, the bigger problem with not understanding your cover is that you could end up being disappointed when you get to claim.
By taking the time to understand the basic details and conditions of your policy upfront, you can rest assured that your financial goals will not be derailed by any unforeseen events, says Leza Wells, Chief Product Actuary at life insurer FMI (a division of Bidvest Life).
So how do you get the most out of your life insurance policy and make sure you’re covered when you need it most? Wells has four tips.
1. Understand your risks
Typically, most life insurers go straight to insuring against permanent disability, critical illness and death with lump sum benefits. “But ask yourself: does this take care of your most likely risks? Your most likely risk isn’t dying; it’s a temporary injury or illness, no matter your age,” says Wells.
That’s why an income protection policy, which covers you against the most likely scenario of an injury or illness, should be the foundation of any risk plan.
2. Understand what you’re covered for
It is vital to understand what your insurance policy covers you for, and for how long. For example, people often assume a long-term disability will result in a payout on lump-sum disability cover. However, this cover only pays out if your disability is permanent and your doctor confirms that your condition won’t ever improve.
“It’s critically important to know exactly what you’re covered for. You must ensure that you not only have temporary income protection, which pays for up to 24 months but extended income protection as well. This will ensure you will be paid a monthly income for as long as you cannot work,” says Wells.
3. Choose a product that can adapt as your life changes
Life is forever changing, and your insurance policy must be able to change with you, without you having to go through any further medical tests. “This is important. If you’ve had a claim, or your health has changed, and your insurance provider requires medical tests for any updates to your policy, you may not be able to claim for certain medical conditions that might have developed since taking out your policy. In the worst case, an insurer can even decline to give you more cover,” says Wells.
4. Understanding your premium pattern
There are different premium options you can choose from, and these affect your annual premium increase rate. Age-rated premiums increase with your age, and the premium charged each year matches the probability of claiming in that year. A level premium may prove more expensive to start with, but remains constant for the duration of your policy as long as your cover remains level. Therefore, a level premium might be more helpful in the long term for budgeting purposes as it is more predictable.
“Make sure you ask your financial adviser what the waiting periods are, the benefit terms, the premium patterns and what the claims criteria are for each product. It may mean the difference between qualifying for a claim or not when you need it,” says Wells.