Most insurance policies are renewed automatically every year, often without us even noticing. Failure to properly review your life cover on at least an annual basis can lead one to be over-insured or under-insured. Over and above an annual review, life cover should be reassessed at every significant life stage and in the event of certain changes. Bear in mind that life insurance premiums are based on age, occupation and health history – including smoker status – and any changes to these may affect your premium and/or underwriting. Many South Africans are currently feeling the pinch as a result of the Covid-19 pandemic and the economic effects of lockdown, and are using this as an opportunity to review their life cover and make adjustments to their policies where appropriate. When reviewing your cover, it is important to take into account the following:
Change in smoker status
Any change in your smoker status needs to be communicated to your insurer. If you applied for cover, were underwritten as a non-smoker and have subsequently started smoking, some insurers may require you to inform them of this change as this is likely to affect the applied premium to the benefit. Failure to inform them of this change may result in a reduced or declined claim.
On the other hand, if you were underwritten as a smoker and have subsequently stopped smoking for a period of at least one year, your insurer may reduce your premiums as a result of your new status. Bear in mind that most insurers will require you to sign a non-smoker declaration and reserve the right to insist on smoking tests which measure the level of cotinine present in your body. As far as insurance is concerned, you are either a smoker or a non-smoker – there is no grey area – so be absolutely honest with your insurer.
Change in occupation or hobby
If, at the point where you implemented your life policy, you where a desk-bound accountant and have subsequently started a new career as a garden landscaper, you have an obligation to let your insurer know. Your occupation – including where you work, how much you travel, how much time you spend at a desk, and the manual component of your job – is an integral part of the underwriting process and affects your premiums. Similarly, any dangerous activities that you have subsequently started engaging in can affect your premiums and should be communicated with your insurer. Activities such as skydiving or certain motor sports are considered hazardous activities by many insurers and will affect the way in which you are underwritten.
Getting married invariably means a change in priorities, including your financial ones. If you died, you may wish to provide your spouse with a sum of money depending on your objectives. For instance, you may want to ensure that in the event of your death there is sufficient liquidity in your estate to settle your combined debt and make provision for an income for your spouse for a period of time. Once you have applied to your insurer for the additional cover, they may require further underwriting following which a quote will be provided.
Travel outside borders of South Africa
If your new job requires that you to travel frequently outside the borders of South Africa, your insurer will need to know – particularly if you are required to travel to certain high-risk countries. Depending on the time you spend out of the country and which countries you travel to, your insurer may increase your premiums or implement exclusions on your policy.
Group life cover
When reviewing your personal life insurance, don’t forget to include any group life cover into the equation. If you are contributing to your employer’s pension fund, check whether you have any group life cover. Importantly, check whether your group cover provides a Free Cover Limit which is the amount of cover you qualify for without being medically underwritten. Group life cover is generally more cost-effective than personal insurance so, if you do need to increase the level of your life cover, it may make financial sense to investigate whether you can increase your group life cover before increasing your personal insurance cover. If you have joined a new company which includes life cover as a benefit, you may wish to reassess the amount of personal life cover you have to ensure you are not over-insured. If you leave an employer and still require the group life cover, enquire about a conversion option for this benefit as this cover may be converted into a personal policy with minimal medical underwriting.
If you have settled large amounts of debt, you may wish to consider reviewing your life and capital disability cover. Invariably, a portion of this cover would have been put in place to ensure that your debt could be settled in the event of your death or disability. If you have subsequently settled this debt, there may no longer be any need for this cover. However, be absolutely sure before cancelling any cover as it may be difficult and expensive to replace at some point in the future.
Having children means increasing the number of people who are financially dependent on you, and your life cover will probably need to be adjusted. Together with your partner, decide what financial provision you would need to make for your children should you die by taking into account their monthly living expenses and the costs of their future education.
Buying a house
If you have purchased a house using a home loan facility, you may need to provide the bank with proof that you have sufficient life insurance to cover the bond in the event of your death. Remember that if the bank requires an insurance policy to cover your bond as a condition of the bond approval, you are under no obligation to take out the insurance offered to you by the bank. If you don’t have sufficient cover in place, consider increasing your existing life policy or possibly implementing a new policy, in line with the value of your home loan.
In the event of divorce, you may wish to review both the quantum of your life cover and the beneficiaries nominated on the policy. If an ex-spouse remains the beneficiary on a life insurance policy the insurer is obligated to pay the proceeds to the named beneficiary as this occurs outside a deceased estate, and your financial dependants would have no to legal means to claim these proceeds.
It is a good idea to check your estate plan to ensure that there is sufficient liquidity in your estate in the event of your passing. It is often assumed that a large estate with multiple assets such as properties, businesses and other immoveable assets will have enough liquidity in it. However, many deceased estates are found to be asset rich but cash poor. The result is that beneficiaries are forced to realise some of the assets in order to cover the liabilities in the estate. Having sufficient life cover to provide for the liquidity needs of your estate is an excellent way of circumventing this problem.
If you are concerned about cashflow over the next few months and worried that your life insurance premiums may lapse, speak to your financial adviser as soon as possible. Many of South Africa’s large insurance companies have implemented relief measures for their clients to help them through the Covid-19 pandemic.