Risk Cover: What you should know

With a variety of life assurers and risk cover policy options available, it is important to take special care when selecting the right policy for you and your family’s needs.

First you need to identify what level and type of cover you already have (if at all) and the level of cover you require. Then you need to consider the benefits, terms and conditions, the costs and very importantly the escalations of the different types of cover. Lastly you need to review your cover regularly to ensure that your information is up to date and that you are neither over- nor under insured.

If your employer provides group risk cover make sure that you understand what you are covered for and if it is sufficient because it might only be a very basic level of cover. It is your responsibility to put top up insurance in place.

Different types of risk cover

There are four main types of risk cover – Life insurance, Disability insurance, Critical illness and Funeral cover. These benefits can be taken out for different terms (i.e. for the full duration of your life, or a specific term).

  1. Life insurance

Life insurance is linked to your life as the insured. It is event based insurance which pays out 100% of the benefit as a lump sum on your death. It can be taken out for a specific term or for the full duration of your life.

  1. Disability insurance

Disability insurance is linked to your occupation as the insured for loss of income after an injury or illness leaves you incapable of working.

It is based on the effect of a qualifying event on your (the insured’s) ability to perform your occupation. There are two types of disability insurance e.g. (i) capital disability and (ii) monthly benefit disability (also known as income protection or income continuation).

(i) Capital disability pays out a lump sum when you, as the insured, are diagnosed as being permanently and irreversibly disabled. The process of establishing permanence can take 24 months or more, depending on the event.

(ii) Monthly benefit disability pays out a monthly sum based on your insured income. The benefit is payable after the applicable waiting period (which can range from one month to multiple months depending on the policy you have taken out) and based on the diagnosis of a qualifying illness or impairment that affects your ability to perform your occupation. This benefit now also pays out tax free but the premiums are not tax deductible.

  1. Critical illness (also known as Dread disease or Severe illness)

Critical illness insurance is linked to your life and health as the insured. It is an event and severity based insurance which pays out a lump sum on diagnosis of a qualifying illness. The pay-out percentage is determined by the type of illness and the severity thereof, or the claims criteria set out by the insurer. It can be taken out for a specific term or for the full duration of your life.

Jaco Gouws, Protection Marketing Manager at Old Mutual mentioned, “Breadwinners, especially those with dependants, need to know the financial implications of an illness. Cancer, for example, affects one in four South Africans. However, improved diagnosis and treatment has resulted in six out of ten cancer sufferers surviving the disease.

“Ironically, the advances in science that improve our chances of surviving cancer, strokes or a heart attack, carry other costs. Survival often comes at a huge financial cost because of lifestyle adjustment, the unexpected expenses of recovering from an illness and so on. The guidance of a professional financial adviser can make all the difference.”

  1. Funeral cover

Provides a lump sum payment to cover the cost of a funeral and it can be paid out within a short period of time after death.

Risk Cover is relatively cheap

Risk cover is relatively cheap, depending on your personal circumstances and risk variables (age, occupation, income, health etc.). For example, a 35 year old man can implement R2 million life cover for about R315 p.m. That’s about the same cost as a restaurant dinner.

In the same instance, a 35 year old woman can insure her gross income of R35 000 p.m. for about R317 p.m. That’s a lot lower than the premium for insuring the average car.

The growth pattern you choose affects the current and future price you pay

There are three main types of growth patterns – Level, Fixed percentage and Age rated. Any one or a combination of these can be applied to the growth rate of your premiums and benefits.

Update your policy regularly

As your life continually changes, so does your insurance needs. It is important to review your cover regularly to ensure that your information is up to date and that you are neither over- nor under insured. As a rule of thumb you should review your cover at least every two years or if a major life event occurs, e.g.:

  • Marriage;
  • Divorce;
  • Change in occupation;
  • Purchasing a house;
  • Birth of a child;
  • Retirement.

Updating your beneficiaries is also very important as the beneficiaries listed on your policy receive precedent over the beneficiaries listed in your will.

Built In Benefits or Optional Extras

Some insurers offer clients a rewards programme linked to their risk cover. This encourages you to have a more active and healthy lifestyle while benefiting from rewards and/or lower premiums.

Other insurers offer built-in benefits that are included as standard benefits of any contract without an additional cost to you as the insured. These benefits include, body repatriation at death, final expenses cover, profit sharing and take-me-home services to name a few. Insurers also offer other optional extras that can be added to your policy at a small premium, for example educational protector to assist you with the cost of your children’s education or a mortgage protector to pay your bond installments for a certain period.

When choosing new cover or reviewing your existing cover, ensure that you are receiving the maximum benefits from your chosen product provider.

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