Finance – Life Insurance Woes

Before you sign up for a life insurance policy, ensure that you understand exactly what’s offered and what your contractual responsibilities are. In the end, it’s all the pesky details that will determine your family’s payout...

The 2018 case of Momentum’s initial refusal to pay out a R2.4 million life cover claim to the widow of Nathan Ganas, who died brutally during a hijack, claiming the deceased had not disclosed a pre-existing diabetic condition, turned many people off life insurance.

Although Momentum’s decision was legally sound, the company’s ethics, fairness and integrity came into question. Are life insurance companies just out to get you, or should we consider that their business is about risk management?

“It’s not that insurers go out of their way not to pay the claims. Sometimes there are delays in pay-outs as companies have to first investigate the claims before paying them,” says Nonhlanhla Nxele, a financial planner, coach and CEO of Tokoloho Financial Services.

WHY DO YOU NEED INSURANCE?

Life cover provides financial security to your loved ones should something happen to you — be it death, an illness, loss of income or an injury. “The idea for life cover is mainly to settle one’s major debt and in some cases, to leave a financial legacy behind for your loved ones. This is especially important for us as black people who were previously disadvantaged,” says Mahalia Gadlela, a registered financial planner and Liberty broker.

BEFORE YOU SIGN

Evaluate your needs. Both experts agree that getting professional advice from a certified financial planner (CFP) is crucial. “A CFP can conduct a full financial needs analysis to establish the kind of cover you need. They would consider your debt, income replacement, dread disease, mortality, group benefits, education and estate duty tax,” Gadlela explains. Check your budget for affordability. “It’s important to compare rates from different insurers so that your decision-making is made easier and in line what you can afford,” Nxele adds. Disclose all the information needed by the insurance company.

Don’t be put off if it becomes a time-consuming process. While we live in a world of instant gratification, collecting all the information that is needed will be worth it in the long run.

“Your broker or financial advisor might not understand the medical questions as they’re not medical consultants. It’s best to go through the tele-underwriting process where you’ll answer all medical questions telephonically through an underwriting agent who understands the questions and is able to simplify them for you,” Nxele advises.

Consider other options. If you’re uncomfortable with taking life insurance or don’t qualify for one, saving and investments are your other options, Gadlela advises.

“Start small by putting money away each month or from surplus funds like your bonus to build up sufficient wealth so you don’t need life insurance. Consider a tax-free savings account as that would have more flexibility should an emergency occur.

For predictable long-term expenses like children’s education, you could consider a longer-term investment with limited flexibility,” Gadlela explains.

Explore company options. “Check with your employer, as some companies offer life cover as part of the employee benefits. If that option is available, try your best to maximise it. If it happens that you leave the company, you’ll have the choice to take it over as an individual policy and you might not have to go through full medical underwriting,” Nxele says.

Start early. It may be tempting to think that you don’t need life cover if you don’t have children or financial dependents.

Take a moment to consider a different viewpoint. “Essentially life cover is mostly needed in one’s ‘early career’ and ‘building wealth’ stages where you’re still accumulating wealth. Obtaining cover in the earlier stages of your life means that you’re buying cover at a younger age. Your health’s in a better state, meaning you’re purchasing more cover at a lower premium. This then also eliminates the possibility of being declined by an insurer; having loadings or exclusions on your policy due to pre-existing conditions that you may pick up later in life should you wish to purchase life insurance,” Gadlela explains.

Check the information. An insurance policy is a legally binding contract between two parties, so it’s important that all information related to your cover is carefully documented in the policy, Gadlela says.

Be completely honest. “It’s crucial that you’re completely honest during the underwriting stage — the process that leads to a final approval or denial of your application. Leaving out important information (whether intentional or unintentional) may damage your claim in the future and is one of the main reasons providers may reject a claim,” Gadlela says. Find out what “benefit exclusion” or “general exclusion” sections of your quote entail. “These sections are mostly ignored by the client when they’re signing the acceptance quote,” Nxele says.