CON­SUMERS SOME­TIMES MIS­LED TO BE­LIEVE THEIR LOAN WON’T BE GRANTED IF THEY DON’T BUY A POL­ICY SOLD BY THE BANK

You can buy two types of cover linked to a loan

Weekend Argus (Saturday Edition) - - MEDIA& MARKETING -

Life as­sur­ance linked to an un­se­cured loan sold by a bank may or may not be cheaper than a pol­icy you can buy else­where.

It de­pends on whether the pol­icy is sold on what is loosely called a group scheme ba­sis, where ev­ery­one is as­sumed to be more or less equal and pays the same premium, or on an in­di­vid­u­ally risk-rated (or un­der­writ­ten) ba­sis, where the pre­mi­ums are ad­justed ac­cord­ing to your per­sonal cir­cum­stances.

If you are in­di­vid­u­ally risk-rated, fac­tors such as your age, gender, health, ed­u­ca­tion, job, hob­bies and whether or not you smoke are taken into ac­count.

For ex­am­ple, you will pay a very low premium for an in­di­vid­u­ally risk-rated pol­icy if you are a 25-year-old healthy, non­smok­ing wo­man who works as a char­tered ac­coun­tant, but if you are a 60-year-old man who smokes and who works as a semi­skilled labourer in a mine, you may find that a group scheme pol­icy will be cheaper.

In other words, the more likely it is that you will meet an early demise, or suf­fer from a dis­ease or have an ac­ci­dent that could un­der­mine your abil­ity to earn a liv­ing, the more you, as an in­di­vid­ual, will pay for life cover.

There is very lit­tle cross­sub­sidi­s­a­tion be­tween high-risk and low-risk in­di­vid­u­als with an in­di­vid­u­ally risk-rated pol­icy. But with a group scheme pol­icy, such as a credit life as­sur­ance prod­uct, there is ex­ten­sive cross­sub­sidi­s­a­tion, be­cause it is vir­tu­ally as­sumed that ev­ery­one is at the same level of risk. The ef­fect is that the young, ed­u­cated and healthy sub­sidise the old, less ed­u­cated and un­healthy.

In most cases, you will be re­quired to un­dergo a thor­ough med­i­cal check-up be­fore you will be is­sued with an in­di­vid­u­ally riskrated pol­icy. Your premium, and even whether or not you will be granted life as­sur­ance, will de­pend on the re­sults of the check-up.

It is likely that you will be asked some ques­tions about your health when you ap­ply for group cover. For ex­am­ple, you may be asked if you cur­rently suf­fer or have re­cently suf­fered from a se­vere dis­ease. If you do or you did, you may be de­nied life as­sur­ance.

You may also be re­quired to un­dergo an HIV test, which will de­ter­mine whether or not you qual­ify for a pol­icy.

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