Content that they have adequate long-term insurance in place, many policyholders neglect to review their cover to ensure that it remains appropriate to their needs. For many, personal circumstances that should trigger an insurance cover review tend to go unnoticed over time which, in turn, could lead to either insufficient cover – or even too much cover for one’s needs. In fact, most long-term insurance policies are renewed automatically each year without the policyholder paying too much attention other than to the contribution increases. As an absolute minimum, an annual review of one’s life cover is advisable to ensure that your risks are duly mitigated. Ideally, however, your risk cover should be reassessed at every significant life event, including the following:
Your smoker status
If there have been changes to your smoker status since the inception of the policy, be sure to find out what your insurer’s requirements are in this regard as there may be an obligation on you to notify them, particularly if you applied for cover as a non-smoker and have subsequently started smoking. Keep in mind that failure to inform them of this change may result in a reduced or declined claim depending on the rules of your particular insurance company. 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 that measure the level of cotinine present in your body. As far as insurance is concerned, you are either classified as a smoker (which includes e-cigarettes and vapes) or a non-smoker – there is no grey area – so be absolutely honest with your insurer.
Change in occupation or pastime
Your occupation, including the nature of your job, where you work, how much you travel, how much time you spend at a desk, and any component of your job, is an integral part of the underwriting process which also affects your premiums. As such, any change in the nature of your occupation should be communicated to your insurer, particularly in relation to your disability cover. Certain occupations, such as pilots and air traffic controllers, present much greater risks than, for instance, a desk-bound accountant, and your insurer will need to underwrite any additional risk that you present as a result of your new occupation. While most occupations qualify for cover, there are certain occupations, such as cash-in-transit guard, which may result in an outright decline. Similarly, if you’ve taken up a sport or pastime which is considered high risk, such as certain motor sports or scuba diving, it is important to let your insurer know about these.
Marriage should automatically trigger a review of your life cover as you will no doubt want to make financial provisions for your spouse in the event of your death. 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 to make provision for an income for your spouse for a pre-determined period of time. Naturally, the level at which you need to provide financially for your spouse will depend on several factors such as his/her qualifications and/or earning potential, health status, living standards, and whether or not you have children who need to be provided for.
Travel outside the borders of South Africa
If you take up new employment that requires 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, it’s important to include your group risk cover in your calculations. If you’re contributing to your employer group’s pension fund, be sure to determine exactly what group risk benefits you enjoy. 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 rather than increasing your personal insurance cover. If you have joined a new company that 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.
Protecting your debt
If you have incurred large debt, such as home or vehicle finance, you may wish to adjust your life and capital disability cover to ensure that your debt can be settled in the event of death or disability. In fact, any increase in your debt levels should trigger a review of your long-term insurance to ensure that, should tragedy strike, your debt can be paid off without burdening your estate. Remember, as your net worth increases over time, you may have a reduced need for life and disability cover. However, before reducing or cancelling any long-term insurance, be absolutely sure that a need for such will not arise in the future – bearing in mind that such cover may be difficult and expensive to replace in the future.
Having children is a sure trigger to review your life cover to ensure that your children’s living expenses and education costs will be provided for in the event of your passing. Again, the level of cover that you put in place to provide for your children will depend on several factors including the ability of your spouse to generate an income, your debt levels, your standard of living, and the level of education you envisage for your children.
If you’re purchasing a property using a home loan facility, your bank will generally insist that you have life cover to the value of your home loan in place. In any event, it is advisable to put sufficient life cover in place to ensure that your bond can be paid off in the event of your death or disability. Remember, if there isn’t sufficient liquidity in your deceased estate to settle your debt, your executor may need to liquidate assets in order to settle your debt, and this can impact detrimentally the inheritance of your heirs. Remember that if your 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 and you are free to increase your personal life cover.
Divorce should immediately trigger a review of your long-term insurance for several reasons. Firstly, following your divorce, you will likely no longer wish to provide financially for your ex-spouse in the event of your death, and you may therefore wish to review the level of life cover you have in place. You’ll also probably want to review the beneficiary nominations on your policy to ensure that your ex-spouse is not named as a beneficiary. Further, keep in mind that if you have a maintenance obligation to your spouse or children in terms of a valid divorce order, you may be required to ensure that this obligation is backed by life cover.
When reviewing your life cover, be sure to determine whether there is sufficient liquidity in your estate in the event of your death. Life cover can be used effectively in one’s estate plan to create liquidity and provide your loved ones with immediate access to capital without having to realise assets in the estate. That said, it is important that such life cover is correctly structured and that the beneficiary nominations are absolutely correct, so be sure to review carefully.
As is evident from the above, long-term insurance can serve a number of different functions in your portfolio and any cover you have in place must be kept updated, adapted, and relevant to your unique circumstances.
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