Life cover isn’t only for the healthy

You don’t have to be in per­fect health to take out life cover, but you may pay a higher pre­mium or have spe­cific ex­clu­sions ap­plied to your pol­icy if your risk of claim­ing is higher than av­er­age. re­ports

Weekend Argus (Saturday Edition) - - FRONT PAGE -

If you are wor­ried that poor health may dis­qual­ify you from tak­ing out life, dis­abil­ity or crit­i­cal ill­ness cover, take heart: life as­sur­ers won’t au­to­mat­i­cally de­cline your ap­pli­ca­tion, but will as­sess your in­di­vid­ual risk fac­tors and de­cide what cover to of­fer and the pre­mium.

Less than two per­cent of ap­pli­ca­tions for cover are re­jected, Dr Mar­ion Morkel, the med­i­cal of­fi­cer at San­lam, says.

“We re­alise peo­ple need longterm in­surance, be­cause it pro­tects their fi­nan­cial in­ter­ests. We are here to of­fer that ser­vice. We de­cline re­luc­tantly,” Dr Do­minique Stott, the ex­ec­u­tive of med­i­cal stan­dards and ser­vices at PPS, says.

When you ap­ply for life as­sur­ance, the provider as­sesses the like­li­hood that you will claim for spe­cific ben­e­fits. This as­sess­ment is based on the in­for­ma­tion you pro­vide in the ap­pli­ca­tion form and on med­i­cal tests or records.

If the risk fac­tors for de­vel­op­ing a dis­ease are present, or you have had a se­ri­ous ill­ness, such as can­cer, your case – known as a non-stan­dard life – will be in­di­vid­u­ally as­sessed to de­ter­mine the ben­e­fits you can be of­fered and at what rates.

An as­surer has sev­eral op­tions if you are a non-stan­dard life, Schalk Malan, the ex­ec­u­tive di­rec­tor of ac­tu­ar­ial at BrightRock, says. These in­clude pre­mium load­ings and ex­clud­ing cer­tain ac­tiv­i­ties, health con­di­tions and ben­e­fits from be­ing cov­ered.

COVER AT A HIGHER RATE

“A load­ing is an ad­di­tional cost ap­plied to your pre­mium when a life as­surer be­lieves that, sta­tis­ti­cally, you are more likely to claim than the av­er­age per­son,” Hay­ley Tay­lor, the head of un­der­writ­ing at Hol­lard Life, says.

Load­ings are a cer­tain per­cent­age above the rate for clients with a stan­dard rate pro­file, usu­ally ex­pressed in in­cre­ments of 25 per­cent, Morkel says.

Load­ings of 50, 100 and 200 per­cent are com­mon.

“Ev­ery com­pany de­ter­mines the level or thresh­old at which they would not of­fer above this rate. This thresh­old is usu­ally de­ter­mined by af­ford­abil­ity. It makes no sense of­fer­ing a prod­uct that is com­pletely un­af­ford­able and that, over time, costs more than the po­ten­tial ben­e­fits em­bed­ded in the prod­ucts of­fered,” Morkel says.

She says that, as gen­eral rule, an ap­pli­ca­tion is de­clined when the rate is three-and-a-half times the ba­sic pre­mium.

Gareth Fried­lan­der, the head of re­search and de­vel­op­ment at Dis­cov­ery Life, says Dis­cov­ery gen­er­ally de­clines poli­cies when the mor­tal­ity risk is greater than 400 per­cent of the stan­dard rate.

The cost of a load­ing is not just the higher pre­mium; there is also an op­por­tu­nity cost. For ex­am­ple, you will have less money to con­trib­ute to re­tire­ment sav­ings if your life cover is ex­pen­sive. How­ever, you have to weigh up the ex­tra cost against the fi­nan­cial risk of not hav­ing cover at all.

EX­CLU­SIONS

“An ex­clu­sion is ap­plied to your pol­icy if an as­surer de­ter­mines that the risk of you mak­ing a claim re­lated to a med­i­cal con­di­tion, dan­ger­ous hobby or risky oc­cu­pa­tion is too great. In that case, an as­surer would pro­vide you with cover with no ad­di­tional cost, but let you know up­front that it won’t pay a claim re­lated to that spe­cific con­di­tion, hobby or oc­cu­pa­tion. Ex­clu­sions can be per­ma­nent or for a spe­cific pe­riod of time,” Tay­lor says.

You may be con­cerned that ex­clud­ing claims for cer­tain con­di­tions negates the point of hav­ing cover in the first place, but Tay­lor dis­agrees.

“Ex­clu­sions are of­ten very spe­cific, which means they limit your abil­ity to claim as lit­tle as is rea­son­ably pos­si­ble,” she says.

Malan says: “We try not to prej­u­dice the client against in­juries that would have oc­curred ir­re­spec­tive of the con­di­tion. An ex­am­ple of our ap­proach was where we had a client with an ex­ist­ing back con­di­tion that re­sulted in an ex­clu­sion on the ex­ist­ing back ail­ments. The client sus­tained a new in­jury to the back in a car ac­ci­dent, and, as a re­sult, the cover paid out for this in­jury, as it was in no way a re­sult of, or ag­gra­vated by the ex­ist­ing con­di­tion, and the ex­clu­sion did not ap­ply.”

IN­DI­VID­UAL RISK AS­SESS­MENT

Be­cause each non-stan­dard life is as­sessed in­di­vid­u­ally, there are no set rates for cer­tain con­di­tions. An as­sur­ance com­pany will be able to tell you what ben­e­fits it will of­fer once it has as­sessed your ap­pli­ca­tion.

“Rates dif­fer from case to case and de­pend on nu­mer­ous fac­tors, in­clud­ing age, risk fac­tors and what type of cover is ap­plied for. In­sur­ers are very in­di­vid­ual in their treat­ment of non-stan­dard lives,” Hesta van der Westhuizen, an ad­vi­sory part­ner at Ci­tadel Wealth Man­age­ment, says.

In her ex­pe­ri­ence, Van der Westhuizen says life com­pa­nies have be­come more will­ing to con­sider of­fer­ing cover to clients who are not in per­fect health, or who are at risk of de­vel­op­ing a con­di­tion, or who have suf­fered an ill­ness.

Stott uses the ex­am­ple of a per­son who had a mi­nor heart at­tack five years ago. Since then, he has fol­lowed treat­ment and life­style pro­grammes to re­duce his risk fac­tors – for ex­am­ple, con­trol­ling his choles­terol and weight. An un­der­writer would take this into ac­count when as­sess­ing his risk, and al­though it is un­likely that he will be of­fered cover at stan­dard rates, he is likely to be of­fered cover with a load­ing on his pre­mium, Stott says.

The prin­ci­ples are sim­i­lar where an ap­pli­cant had can­cer, but is now in re­mis­sion.

“The un­der­writer would need to as­sess the long- term out­come (which is key to the de­ci­sion-mak­ing process) based on var­i­ous pieces of sup­port­ing in­for­ma­tion, like the type and stage of can­cer at di­ag­no­sis, type of treat­ment re­ceived and time elapsed since com­ple­tion of treat­ment,” Dr Philippa Peil, the chief med­i­cal of­fi­cer at Lib­erty, says.

The type of treat­ment is also im­por­tant in as­sess­ing risk, be­cause cer­tain treat­ments for can­cer have long- term side­ef­fects that increase the risk of de­vel­op­ing other con­di­tions, such as heart dis­ease, Stott says.

Some as­sur­ers will pro­vide cover for cer­tain types of can­cer if the re­mis­sion pe­riod has been longer than two years, whereas oth­ers re­quire re­mis­sion of five to seven years be­fore they will con­sider an ap­pli­ca­tion for cover.

If the risk fac­tors for de­vel­op­ing a se­ri­ous ill­ness are present, your risk and rat­ing will be as­sessed based on the in­for­ma­tion pro­vided.

Tay­lor cites the ex­am­ple of a 40-year-old man who has high choles­terol, a fam­ily his­tory of high choles­terol and a fa­ther who suf­fered a fa­tal heart at­tack be­fore the age of 50. This would place him in a high-risk cat­e­gory, and an as­surer would ap­ply a load­ing to his pre­mi­ums for life, crit­i­cal ill­ness or dis­abil­ity cover.

But there are cases where the pres­ence of risk fac­tors does not mean that the risk is higher. Dr Morkel uses the ex­am­ple of breast can­cer.

“If we are aware that a fe­male ap­pli­cant has a strong fam­ily his­tory of breast can­cer as a re­sult of a spe­cific gene mu­ta­tion, this would place her in a sub-stan­dard rates pool. How­ever, on closer in­spec­tion, we dis­cover that she has tested neg­a­tive for this gene mu­ta­tion and she has reg­u­lar breast check-ups, all of which have been nor­mal.”

These are re­garded as mer­its that would change the ini­tial risk as­sess­ment, she says.

RE­VIEW­ING A LOAD­ING

Most life as­sur­ers are pre­pared to re­view pre­mium load­ings and ex­clu­sions if there has been a sig­nif­i­cant change in your health, Van der Westhuizen says. This in­cludes ev­i­dence that your cur­rent state of health is not as it was as­sumed to be when you were as­sessed ini­tially, or that your con­di­tion has im­proved – for ex­am­ple, you had ex­ces­sively high blood pres­sure, but it has been brought un­der con­trol.

Some as­sur­ers may re­quire you to mon­i­tor your con­di­tion, while oth­ers have pro­grammes that are de­signed to con­trol your med­i­cal con­di­tion.

Fried­lan­der says Dis­cov­ery Life will soon in­tro­duce a Man­aged Care In­te­gra­tor that will en­able cer­tain pol­i­cy­hold­ers to re­duce and ul­ti­mately re­move their pre­mium load­ings if they man­age their health con­di­tions via a man­aged-care pro­gramme pro­vided by Dis­cov­ery Health or Vi­tal­ity. How­ever, load­ings for cer­tain con­di­tions – for ex­am­ple, coro­nary artery dis­ease – are not re­view­able, he says.

If your pol­icy has a load­ing or ex­clu­sion, ask your as­surer or fi­nan­cial ad­viser when and un­der what cir­cum­stances it can be re­viewed. Re­mem­ber, that if you have to un­dergo a med­i­cal test, the cost is likely to be for your ac­count.

Should you try to ob­tain a lower rate if your pre­mium has been loaded?

Van der Westhuizen says that, when you ap­ply for cover and have to un­dergo a med­i­cal test, the re­sults are stored in a cen­tral in­for­ma­tion reg­is­ter that is ac­ces­si­ble to all as­sur­ers. There­fore, all life as­sur­ers will make sim­i­lar de­ci­sions about the pre­mium charged.

Load­ings are pretty stan­dard across the in­dus­try, Ca­rina Knill, a fi­nan­cial plan­ner at the Here­ford Group, says.

Malan, how­ever, be­lieves it is worth­while to shop around.

He says there are providers that use the lat­est needs-matched pric­ing tech­nolo­gies to bet­ter match cover to clients’ needs and de­liver more value – an av­er­age of about 40 per­cent more cover per pre­mium rand.

“This sav­ing ex­tends to non-stan­dard lives, and is per­haps even more im­por­tant where load­ings im­pact on tra­di­tional poli­cies, as ef­fi­ciently priced pre­mi­ums can serve to negate or re­duce the im­pact of load­ings sig­nif­i­cantly,” Malan says.

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