Insurance of any kind is a grudge purchase, and perhaps life and dread disease even more so because death, or being permanently incapacitated and unable to work, is not a pleasant thought.

Yet, either a critical illness diagnosis or death will “not only have an immense emotional impact on your family but a financial impact as well,” said Corli Basson, business manager of Underwriting at 1Life Insurance.

She said that life cover payouts can be used to cover daily expenses such as food, clothing, school fees, and rent/home loans to safeguard your family’s financial future and build generational wealth. “Life cover will protect your family’s lifestyle and financial future should you pass away.”

Life insurance can also cover settling a bond.

Managing executive of Absa Life, Eugene Strauss, said: “It is common practice for banks to require that you cede a portion of your life insurance policy to them when taking out a bond. This ensures that, in the event of your death, the outstanding bond balance is paid off directly to the bank, protecting both you and the lender.”

Kia Brokers managing member Gerald Kahn explained that life cover was also dependent on life cycles, such as whether debt and children’s education needed to be covered at that stage.

Bidvest Life’s 2023 Claims Report shows that millennials were 55 times more likely to claim their income protection benefits than their death benefits during the year, while also accounting for 50% of all income protection claims but representing just 12% of death claims.

Yet, many life insurance and dread disease policies have exclusions, such as a previous heart attack, depending on their risk profiles.

Denise Gabriels, lead ombud in the Life Insurance Division at the National Financial Ombud Scheme of South Africa, explained that individual insurers manage risk differently according to the risk appetite for a particular product or event.

In underwriting a risk policy, they may apply general exclusions and additional specific exclusions on some benefits/products and not on others, and may add premium loadings on the policy or particular benefits covered, she said.

“Life insurance is designed to be a safety net, protecting you and your loved ones when life takes an unexpected turn. Exclusions are a necessary part of the underwriting process that allows insurers to offer fair pricing based on your current health status and risk profile. Without them, premiums would skyrocket for everyone, or many people wouldn’t be able to get cover at all,” Josh Kaplan, co-CEO and co-founder of Dis-Chem Life, said.

Exclusions are applied as a risk management strategy, Melody Cloete, training specialist at Bidvest Life, explained. “All insurance operates on a pooled risk system, in which all policyholders contribute to a ‘pool’ from which all valid claims are paid. When it comes to life insurance, higher-risk individuals may face exclusions or higher premiums to ensure that the pool remains sufficient to pay anticipated claims,” she noted.

Gabriels warned, however, that “any material non-disclosure or misrepresentation may lead to the voiding of the policy and the benefits not being paid at the claim stage”. For those who want to hide medical history, she said: “As part of the application process, insurers usually obtain permission to obtain medical records at any stage and may do so when a claim is lodged.”

If you die from a cause that is specifically excluded from your life insurance policy, the insurer may refuse to pay the death benefit, said Strauss. “In such cases, the insurer may not cover the bond balance, and your estate or family could be left to settle the remaining debt,” he noted.

Janet Brodie, chief underwriting officer at Momentum Life Insurance, explained that when a claim is received, especially one soon after the inception of a policy, insurance companies compare new medical records with the original disclosures.

Interestingly, Kaplan said, contrary to what many believe, insurers don’t automatically reject these claims. “In most cases, they aim to act fairly by treating the policy as if full disclosure had occurred from the start. This typically involves recalculating the premiums that should have been paid and deducting the shortfall from the claim amount.”

This does not mean, said Gabriels, that exclusions for medical conditions can be applied retrospectively. “One can only disclose what one knows.” She did caution that this does not mean ignoring what the policy covers or not answering the questions in full and without applying your mind.

“Tomorrow is never promised. Getting life insurance may often feel overwhelming. However, life is unpredictable; take the opportunity to protect your financial future as well as that of your loved ones,” said Basson.

Takeaways:

Applicants must answer all questions honestly, as they are uniquely positioned to provide this information. Transparency ensures claims will be paid when needed. Insurers aim to honour claims wherever possible and only decline them in cases of material misrepresentation.
Insurers strive to pay valid claims and work diligently to ensure fair outcomes for policyholders.
Underwriting is not a one-size-fits-all process. All individuals’ circumstances are unique, and each application is assessed accordingly. Insurers must protect their risk pool without compromising fair claim outcomes.
Some insurers take proactive steps to mitigate non-disclosure risks through mobile screening, data verification, and tele-interviews. However, the best way to ensure a successful claim is through complete honesty when applying for cover.

Source: Momentum

PERSONAL FINANCE