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MONEY APRIL 2021
LIFE AND DISABILITY COVER
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CONTENTS FEATURES 8 Factors life insurers use to assess your risk
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How to ensure your claim is not rejected
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Should ant-vaxxers pay more for life insurance?
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Four reasons not to cancel your life cover
It’s important to know the risk benefits your company provides
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REGULARS Rands and Sense with Mark Hawe
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Fact File: Asisa statistics
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Money Basics with Martin Hesse: The different types of life and disability insurance
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Money Quiz 18 Planning Perspectives with Palesa Tlholoe
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Important contacts and links
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FROM THE EDITOR
If a child, a spouse, a life partner or a parent depends on you and your income, you need life insurance. – SUZE ORMAN
American financial advisor, author, and podcast host
CONTACT US PUBLISHER Vasantha Angamuthu vasantha@africannewsagency.com MONEY EDITOR Martin Hesse martin.hesse@inl.co.za DESIGN Mallory Munien mallory.munien@inl.co.za PRODUCTION Renata Ford renata.ford@inl.co.za BUSINESS DEVELOPMENT Keshni Odayan keshni.odayan@inl.co.za SALES Charl Reineke charl@africannewsagency.com ENQUIRIES info@anapublishing.com
IF YOU were to protect just one of your assets, which would you choose? Your house? Your car? Your greatest asset, and the one that needs protecting the most, is YOU. It is your ability to work and earn an income, for yourself and your family. If you were to die in a car accident tomorrow, what would happen to your family? How would your partner and children survive financially? Your partner may also be earning, but a huge portion of household income would have dried up overnight. What if you survived the car accident, but were left with a permanent disability that prevented you from doing your job? You’d still be together as a family, but without your income. And you’d have high medical costs to contend with. If you’re young and single, you may not need life cover, but you most certainly need disability cover. You would have to fund your own future as a disabled person. The important thing about life and disability cover is that it’s best to buy it when you’re young and healthy. The premiums are far lower than for someone who is old and unhealthy. You may see it as an unnecessary expense, but you’re worth it! The sooner, the cheaper!
Martin Hesse
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FACTORS LIFE INSURERS USE TO ASSESS YOUR RISK AN insurance company first needs to know the risk it is taking on before it will agree to insure you for death or disability. This is known as underwriting. If you present a high risk to the company, you will pay a higher premium than if you present a low risk, because the probability of claiming is higher. Insurers look at several factors when assessing your risk, through a list of questions in the application form, which you need to answer fully and truthfully. The most common factors are the following.
1. AGE
2. GENDER
The older you are, the higher the chance of you falling ill or dying. Someone taking out a life policy in their twenties will pay a far lower premium than someone doing so in their sixties.
Women tend to live longer than men – by seven years, on average. Therefore a woman will pay a lower premium than a man for the same amount of cover, all other things being equal.
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3. HEALTH
4. OCCUPATION
Your medical history as well as your family history of any inheritable diseases are essential for your underwriting. If you omit something serious, such as having diabetes, a claim is likely to be rejected.
Some occupations are more dangerous than others. If you work outside – on construction projects, for example – or on a factory floor, you present a higher risk than if you work in an office.
5. LEISURE ACTIVITIES
6. EDUCATION LEVEL
You may get a thrill out of skydiving or rock climbing, but your insurance company will not share in your delight. You need to weigh up whether or not doing these activities is worth the higher premium.
People with a higher level of formal education tend to be healthier and live longer than those with less education. This factor goes handin-hand with the following one, your income level.
7. INCOME LEVEL
8. SMOKER STATUS
Statistics show that higher-income earners are healthier and live longer than people living on a lower income. They can afford better health care, tend to eat more healthily, and generally live a healthier lifestyle.
The dangers of smoking are by now well known. Being a non-smoker makes a huge difference to your premium: you could pay half of what a smoker pays for the same amount of cover, all else equal.
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HOW TO ENSURE YOUR CLAIM IS NOT REJECTED You need to get things right when you take out a policy as well as when you claim if the cover is to work as it should, explains ANTON KEET THE pay-out from life insurance or disability or dread disease cover can help you and your family cope financially in difficult times. But if an important detail is not disclosed – even if it was not intentional – this may lead to a claim being rejected by the insurance company. If you claim for a benefit you are not entitled to, that’s insurance fraud. This might be deliberate – falsifying documents, for instance – but it may also be the unintentional non-disclosure of important information. As much as 60% of the claims declined by life insurance companies belonging to the Association for Savings and Investments SA were not paid because there was non-disclosure
of some form by the policyholder. In many cases, the non-disclosure was inadvertent. It really is important to disclose everything when you take out a policy. When it comes to full disclosure, there is never too much information. You need to consider your claim history and your medical history – as well as that of your family. HEALTH INFORMATION Most insurers need a full and accurate picture of your health and lifestyle past and present as well as an HIV test when you apply for the cover. This is what they base your premiums on. Most insurers will, however, also require you to keep them updated of any changes
to your health and will also ask about your health when there is a claim on a policy. Be sure to ask your insurer what health information they need to know and when. Such information includes: ♦ Having a chronic illness such as diabetes, hypertension (high blood pressure), high cholesterol or heart disease, asthma or arthritis; ♦ Depression that requires treatment or care; ♦ Chronic pain, such as back pain, that you regularly selfmedicate for; ♦ Previous illnesses such as Covid19, cancer, or a heart attack, even if you have fully recovered; and ♦ Your family history of serious illnesses such as cancer or heart disease.
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LIFESTYLE INFORMATION You will also need to give your insurer relevant information about your lifestyle when you apply for cover and then again during your policy contract. For example, if you apply for a policy in 2010 and take up cave diving in 2021, you need to tell your insurer in 2021 that you now have a dangerous hobby. On the other hand, keeping your insurer informed can also help you reduce premiums. For example, if you stop smoking, your premium can decrease by nearly half! Examples of such lifestyle information you should update and consistently disclose can include: ♦ How much and what kind of alcohol you drink; ♦ Smoking status, including
vaping; ♦ Your weight and height; ♦ Hazardous pursuits, such as skiing, cave diving or rock climbing; ♦ Any personal and work travel, especially outside the borders of South Africa; and ♦ Your occupation – what work you do and how far you travel to and from work daily. FINANCIAL INFORMATION Finally, your financial position is also important. Your insurer needs a brief but accurate picture of your finances to make sure you are not over-insuring. Although this is rare, it can happen and can result in claims being rejected or claim payouts being reduced.
TOP TIPS ♦ Give too much information rather than too little; ♦ Keep a health file with your complete health history – we are all human and can forget operations or health issues we may have had a decade ago; ♦ Have regular health checks and update your insurer on any changes; and ♦ Be honest about your health and lifestyle. You can always ask your financial adviser or insurance broker if you are unclear on what you need to disclose and when. It’s always better to be safe – so ask if you are unsure. Anton Keet is the head of risk services at 1Life.
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SHOULD ANTI-VAXXERS PAY MORE FOR LIFE INSURANCE? MARTIN HESSE reports on an actuary’s research into vaccination as a risk factor in determining your premiums on a life policy.
ON the face of it, people who are not vaccinated against vaccinepreventable deadly diseases pose a higher risk to life insurance companies than those who are. Should they be penalised accordingly? This was the intriguing question posed by actuary Pamela Hellig, director of client services at MBE Consulting, at last year’s annual convention of the Actuarial Society of South Africa. Hellig’s presentation was based on her paper “The ethical and practical considerations of using vaccination history as a rating factor in life insurance underwriting”. When you apply for cover, the life insurance company uses what is known as the underwriting process to assess how risky you are to insure. You are required to fill in a questionnaire on your medical history, occupation and leisure pursuits, among other things. South African insurers also tend to take four general risk factors into account: your age, gender, whether you are a smoker or not, and your socio-economic status, determined by education level and income. With this information, the insurer will assess whether or not
to grant you cover and, if so, what exclusions may apply and what premium you will pay. The lower your overall risk, the lower your premiums will be. In her paper, Hellig makes a case for insurers including your vaccination record as an underwriting factor. VACCINATION PROGRAMMES In the 20th century, Hellig notes, vaccination became one of the most successful medical interventions in history. Smallpox was officially eradicated by 1980, and vaccines have successfully contained many of the world’s most devastating infectious diseases, including polio, diphtheria, typhoid, cholera, hepatitis, tuberculosis, and, more recently, human papillomavirus, which can cause cervical cancer in women. Many vaccines are extremely affordable, and governments worldwide, including ours, offer vaccination programmes free or at very low cost to citizens. Hellig says: “Large-scale administration of vaccines has not only saved countless lives over the past century, but it has also led to a substantial decline in health care costs.”
NON-VAXXERS AND ANTI-VAXXERS Despite their unqualified success, vaccines have been the subject of widespread suspicion and “fake news”, epitomised by the anti-vax movement, which the Covid-19 pandemic only seems to have emboldened. A trigger was the publication In 1998 of a paper by Dr Andrew Wakefield, a British gastroenterologist, which has been called “the most damaging medical hoax of the last 100 years”. The paper falsely linked autism to the measles, mumps, and rubella (MMR) vaccine. It is in this shadow that many people are now hesitant about receiving a vaccine against Covid-19. But the problem is wider than the anti-vax movement, Hellig says. In South Africa, where the childhood vaccination programme is free but not mandatory, take-up is well below target. Many factors may account for this, including a lack of education, societal norms, and what is known as omission bias, where the risks of inaction are perceived to be lower than those of taking an action. And while risks to children are high, the risks to unvaccinated
Governments worldwide, including ours, offer
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vaccination programmes free or at very low cost to citizens.
adults are far higher, Hellig says. Many more adults than children die from vaccine-preventable diseases annually. THE CASE FOR UNDERWRITING To support her suggestion that vaccination be included as an underwriting factor, Hellig refers to a Master’s thesis by retired actuary Francois Marais, “A critical evaluation of discrimination in risk underwriting in the life insurance industry in South Africa” (see “Do insurers discriminate unfairly?”). Marais argues that for such discrimination to be fair, it must be justifiable on three points: 1. The statistical evidence to support the discrimination must be strong and reliable. Hellig says: “The question here is whether the mortality and morbidity linked to non-vaccination in the insured population is statistically significant enough to warrant the inclusion of a vaccination-related rating factor in the underwriting process.” She says more research would be needed. However, figures from Statistics SA and the World
Health Organization show that vaccinations could prevent more than 50 000 adult deaths annually in South Africa. Given that the average South African earner has life cover of R600 000, the industry could save more than R30 billion a year. Furthermore, the cost of treating these vaccine-preventable illnesses in hospital potentially dwarfs the mortality cost. 2. Is the allocation of each applicant to a risk group unambiguous? Hellig says your vaccination record would unambiguously determine whether you fall into the risk group or not. 3. Does the effect of the factor on mortality have a reasonable causal explanation? “A plethora of research has been done over centuries – and continues to be done – which proves the efficacy of vaccination,” Hellig says. She suggests that instead of penalising anti-vaxxers, insurers could encourage people to be vaccinated by offering premium discounts or wellness-programme incentives.
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4 REASONS NOT TO CANCEL YOUR LIFE COVER If you are in a financial tight spot, it may cross your mind to cancel your life cover with a view to “restarting” it when times improve. Don’t consider it, advises an expert. TIMES are tough. The pandemic has affected the income of millions of South Africans. But as people scramble to find ways to reduce their monthly expenses, there’s one monthly expense which should be last on the list to be cancelled: your life insurance. That’s the advice from Bani Schmidt, sales and marketing executive at Stangen Life Insurance, who says cancelling your life insurance will not only remove the benefits it offers and leave your loved ones at risk, but it could be harder and more expensive to get new or the same
cover in the future. Bani highlights four key reasons not to cancel your life insurance: 1. You’ll never get cover at this price again If you think you can cancel your life insurance temporarily and take out a new policy when your finances get better, think again. The younger you are, the cheaper life insurance is. “Every year you age, it will cost you more to replace your cover. If you choose to cancel your policy and then reapply later, your higher age will make you liable for higher monthly premiums.
There also might be more stringent medical testing. And if you get sick in the interim, your application could be declined or it could be given a health loading, which will make it even more expensive,” says Schmidt. 2. You’ll leave your family exposed You take out life insurance for one main reason: to protect your family’s financial future if anything happens to you, and to allow them to keep paying for things like education, the home loan and day-to-day expenses. If you cancel the policy, that all goes away,
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leaving your loved ones at risk should anything happen to you. “Ask yourself: If your income falls away, would it create financial stress to your family? If the answer is yes, you should do whatever you can to hold onto your life insurance,” says Schmidt. 3. Your debts don’t disappear when you die The starting point for any life insurance calculation is to cover your debts when you die, and leave enough money in the estate so that your family will be able to carry on without too much of a financial impact. “Having debt
means it needs to be repaid – and if you die suddenly, your bank will insist that all debts be repaid immediately, or your home and assets end up on auction, leaving your family high and dry,” says Schmidt. 4. You don’t get your premiums back If you have an older policy that still has a cash-back value, you may get back a fraction of what you paid. But newer policies are pure risk products that carry no cash or surrender value: 100% of your premiums are used to finance your life cover. “When you cancel your
life cover, your consistent premium payments over a period of years means nothing. Getting premiums back is only made possible on life insurance policies that have a specific “cashback” add-on benefit and for which you typically would have paid more. Otherwise, if you got the benefit of cover, you cannot expect a premium in return after the fact,” says Schmidt. The bottom line? “Having safety nets and provisions in place for you and your tribe is vital to everyone’s future. So, think big, think far and don’t take any chances with your family’s future.”
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Rands & Sense
COVID-19 A REMINDER TO ENSURE YOUR AFFAIRS ARE IN ORDER
Mark Hawes
WITH over 50 000 South Africans dying of Covid-19-related illnesses in the past year, the pandemic has forced us to face our own vulnerability and take stock of our lives. Ensuring that our financial affairs are in order is now imperative. With even healthy and young people dying, the question of “what will happen to my family if I pass away” has never been more important. Your death can place a massive administrative burden on your loved ones long after you have passed. Having a “ready to depart” file with all the documents and information necessary in the event of your death will assist your family. They will have access to your will, living will, passwords and title deeds, for example. Having all these documents in a single file or folder allows for ease of reference and access during what will be an extremely emotional and stressful time for them. The following items are crucial to include in your personal “ready to depart” file, which can be kept in a safe or filed with your lawyer for safekeeping: 1. Important documents Keep a record of the contact details of your lawyer, insurance broker and financial adviser, all of whom need to be notified when you die. Include in your file copies of your birth and marriage certificates, antenuptial contract, divorce agreement, any family death certificates, your ID book or card, will, and your living will, if you have one. Include the most recent tax assessments for both yourself and your partner, car ownership documents and any title deeds for properties. If you own a business or shares of a company, include important documents such as partnership agreements. 2. Medical details In the case of medical incapacitation, it is a good idea to keep a record of your medical history and that of dependent family members. Record details of your medical scheme and gap cover policies, and the number of your broker, if you have one. 3. Personal details Keep a safe record of passwords or pins for phones, computers and bank accounts – you can encrypt them using an app such as LastPass. Include a letter detailing your desired funeral arrangements. Write down a list of your bank accounts and a list of debit orders which go off every month. List the number of your financial adviser. Estate planning not only includes your financial affairs but your legacy and beneficiary structuring and planning. Some areas that need setting up include ensuring funeral arrangements are in place and understood; appointing guardians for minor children (and informing the guardians of your wishes); and setting up trusts and appointing trustees as well as competent executors. You can start by having an effective will in place, and making sure there is enough money on death to settle debts and to provide for dependants. If you do not have enough money to provide for these outcomes, you should have life insurance in place to cover them. A professional financial planner can assist you, providing advice and guidance to get you to where you need to be. Hawes is a Certified Financial Planner and financal consultant at Alexander Forbes
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FACT FILE
Life insurers paid more than half a trillion rand in benefits last year POLICYHOLDERS and beneficiaries received benefits worth R522.7 billion from South African life insurers in 2020. According to the long-term insurance statistics released recently by the Association for Savings and Investment South Africa (Asisa), this represents an increase of R31.7bn on the R491bn paid out in 2019. Hennie de Villiers, deputy chair of the Asisa life and risk board committee, points out that the payments made to policyholders and beneficiaries included retirement annuity and endowment policy benefits as well as claims against life, disability, critical illness and income protection policies. De Villiers says the life industry recorded 434 216 death claims in 2020, a significant increase from the 317 442 claims received in 2019. More than half of the death claims in 2020 were for funeral policies (266 321) while the rest were for life policies, credit life policies and other policies that provide life cover. De Villiers says the life insurance industry showcased its resilience in 2020 by completing a challenging year with more than double the legally required capital buffer in place. The industry held assets of R3.23 trillion at the end of 2020, while liabilities amounted to R2.89 trillion. This left the industry with free assets of R333.5bn, which is more than double the capital required by law. De Villiers says 8.9 million new individual recurring premium risk policies (life, disability, dread disease and income protection cover) were bought last year, compared with 9.6 million in 2019. He says that since financial intermediaries were not considered an essential service during the hard lockdown period last year, their ability to advise clients was limited. This contributed to a significant reduction in new business volumes for 2020, further impacted by reduced consumer spending power. De Villiers says, unfortunately, 10.2 million risk policies lapsed last year. A lapse occurs when the policyholder stops paying premiums and the cover ceases. In 2019, some
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8.8 million risk policies lapsed. He says while the increase in the 2020 lapse rate is concerning, it was to be expected given the high number of South Africans who lost their incomes during the Covid-19 lockdown period. “Every risk policy lapsed means that South Africa’s sizeable insurance gap widens even further leaving more families financially vulnerable should their breadwinner die or become disabled.”
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MONEY BASICS
with MARTIN HESSE
The different types of life and disability insurance THE life insurance market is very different from what it was 50 years ago, with a far wider range of choices for the consumer. Although life cover has not changed to any degree, disability cover has become more complex and varied, and dread disease cover is a relatively new addition to the product range. The trouble with greater complexity is that it is more difficult for consumers to compare products regarding value for money and suitability. Group risk versus private cover If you are permanently employed and belong to a retirement fund, a portion of your retirement fund
contribution may go towards group risk cover: life and disability cover for all the employees in your company. The employees are not individually “underwritten”, meaning that each individual is not assessed on his or her particular risks, such as age and health. All employees on the same salary level will pay the same premium, whether they are young or old, healthy or unhealthy. Group life cover is normally a multiple (for example, three or four times) of your annual salary. It’s likely you will need to supplement your group cover with private individual cover.
Underwritten versus non-underwritten cover Some insurance companies offer products with no or very little underwriting. You do not have to go for a medical check-up and there is a very short list of questions about your health. This type of cover is often more expensive than a fullyunderwritten policy, which requires you to answer a long list of medical questions and to go for a medical examination by a doctor. It may also have more onerous conditions: for example, you may not be able to claim within the first six months. Don’t think that, because you don’t have to go for a medical, you can get away with hoodwinking the insurance company by not being truthful in answering any health questions. If you claim, the insurer will investigate your medical history, and will reject the claim if it finds you did not disclose a serious health condition, such as diabetes or asthma. Accidental versus comprehensive cover Accidental cover is far cheaper than comprehensive cover because it only covers you for death or disability as the result of injuries from an accident or other unnatural causes, such as assault or murder. Most people die from natural causes connected with their health, which are not covered under an accident policy. Accidental cover may supplement your comprehensive cover, but it should not be a substitute for it. Life cover This type of cover, also called “death cover”, pays out a lump sum when you die. The payout is made to the beneficiaries named on your policy, such as your spouse and/or children. Life cover is not essential to have if you are young and single, except to cover any debts you may have; it is designed to give families financial protection if the breadwinner is no longer alive to provide for them. However, the older you are when you take out life cover, the higher your premiums will be. Disability cover This kicks in if you are temporarily or permanently disabled, through either injury or illness, and you are not able to work. It comes in two forms: lump-sum disability cover, which pays out a lump sum; and income protection cover, which pays a monthly income for the duration of your disability. Some financial advisers say disability cover is more important than life cover, because the chances of you becoming disabled during your
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working career are higher than you dying. Unlike life cover, it’s essential to have when you are young and single: you are protecting your future earnings for the rest of your working life. Disability is typically defined in relation to whether or not you are able to do your job. For example, losing a leg in a car accident will not prevent you from doing your job if you work at a computer, but it will prevent you from doing your job if you are an aerobics instructor. Dread disease cover Also known as critical illness cover, this pays out if you contract a life-threatening illness such as heart disease, cancer or stroke. Some policies extend cover to common diseases, such as multiple sclerosis and Alzheimer’s. The purpose is to supplement your medical cover and to pay for expenses that your medical aid will not cover, such as special equipment you may need. The policy will pay out a percentage of the total sum insured depending on the severity of the disease: for example, it will pay out 25% for stage-1 cancer, increasing to the full 100% at stage 4. Funeral cover This covers you, and possibly also members of your immediate family, for funeral and related expenses on death. It is normally for a relatively low amount – R100 000 or less – and will pay out quickly, within a couple of days, so that the funeral can proceed. For the amount of cover you get, the premiums are high compared with underwritten life cover, though the latter may take a little longer to pay out. It should not be used as a substitute for life cover.
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IT’S IMPORTANT TO KNOW THE RISK BENEFITS YOUR COMPANY PROVIDES If you are a full-time employee and contributing to a retirement fund, you are likely to be covered for death and disability under a group risk scheme for the company’s employees. But is the cover enough for your needs? WHETHER you are starting a new job or have been at your place of work for years, it’s important to pay attention to the group risk benefits that may form part of your employment package. Karen Bongers, product actuary at Sanlam, says that employees who receive group risk benefits should critically analyse their cover to determine whether they are adequately insured. Even if you are fortunate enough to receive group benefits, they may not be sufficient to provide adequate financial protection for you and your family’s needs in the event of death, disability or critical illness. Bongers says that group benefits add significant value, but it’s concerning when people assume that their risk needs are fully covered by such benefits. “The group risk benefits packages offered by employers typically include life and disability insurance, the latter being in the form of lump sum cover and/ or income protection, potentially also with some critical illness cover options. The amount paid out for a
lump-sum benefit (be it for death, disability or critical illness) is usually a multiple of your annual salary. There may, however, be a large gap between the amount your family will receive and what your dependants will need, and you may need to consider topping up your cover with individual risk insurance,” she explains. SIX QUESTIONS TO ASK YOUR HR DEPARTMENT Bongers suggests that you ask your HR department the following six questions: 1. What benefits am I covered for? You should also know the amounts for which you are covered and, in the case of income protection, for what period of time. For example, some income protection packages will pay benefits only for a specified maximum period of time, whereas others may pay until your retirement date. In all cases, the income benefits will cease on recovery or death. 2. When is my cover likely to change? As you get
older, the amount to be paid out may decrease, so your cover may be affected. Conversely, particular life events (for example, the birth of a child) may qualify you for enhanced benefits. Certain benefits may be offered as “accelerated benefits”, which means that a claim for one benefit may decrease the cover you have remaining on another – for example, a claim on an accelerated disability benefit will reduce the amount of life insurance cover you have. 3. Under what circumstances may I no longer be eligible for certain benefits? In some instances, if you claim for disability, you may no longer have life insurance, or you may need to continue paying premiums to ensure you have cover. 4. How do I nominate beneficiaries? Many employees neglect to name the beneficiaries of their risk benefits – these are the people who will benefit if you die in service. This may result in a potentially
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lengthy legal process, leaving your dependants out of pocket or even destitute until your estate is wound up. 5. What are the tax implications of my group risk benefits package? You may, for instance, be under the impression that your beneficiaries will receive four times your annual salary if something happens to you, but various forms of tax may reduce this amount considerably. 6. How flexible is the company package? What happens if you are retrenched, or if you resign or retire? Does your cover cease, or can you convert it to an individual risk insurance package? Is there a time frame?
READ THE FINE PRINT Study the terms and conditions of your group risk policy. Are there waiting periods and possible exclusions? And what are the definitions of each risk benefit? “When it comes to lump-sum disability cover, many people don’t pay attention to definitions and they often think they will receive a payout in the event of any impairment. However, this may not be the case if they only have permanent disability cover. For income protection, the definitions are equally important, as an impairment will not necessarily preclude you from working and the claim may, therefore, not be
admitted as a disability,” Bongers says. REVIEW YOUR COVER OFTEN Bongers says it’s advisable to review your risk cover whenever a major life event occurs, such as marriage or the birth of a child. “To keep it top of mind, however, monitor your benefits at least once a year. In this way you will ensure that the benefits remain up to date and continue to meet the needs of those who depend on you.” She says a regular conversation with a financial planner is critical if you want to ensure that you have sufficient benefits in place to protect your needs and those of your family.
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Money Quiz Test yourself on your financial knowledge
1. What does EAC stand for in relation to collective investments? a) Expected additional capital b) Effective annual cost c) Excluded adviser charge d) Earnings and commission
6. What is the maximum percentage that a living annuity can invest in the equity market? a) There is no limit. b) 40% c) 60% d) 75%
2. Which one of these is not one of the four main asset classes? a) Equity b) Venture capital c) Property d) Bonds
7. Who is the head of the Financial Sector Conduct Authority? a) Muvhango Lukhaimane b) Dube Tshidi c) Judge Bernard Ngoepe d) Adv Nonku Tshombe
3. What is the name of the investment company headed by Warren Buffett? a) Berkshire Hathaway b) The Quantum Fund c) Bain Capital d) Prosus
8. Which government body is responsible for the market conduct of banks? a) The SA Reserve Bank b) The Department of Trade and Industry c) The Financial Sector Conduct Authority d) The SA Revenue Service
4. Which of these global companies is a major component of the Prosus investment portfolio? a) Alibaba b) Amazon c) Tesla d) Tencent 5. If the rand/dollar exchange rate is R16/$, and it changes to R12/$, how has the rand performed in dollar terms? a) Gained 25% b) Lost 25% c) Gained 33.3% d) Lost 33.3%
ANSWERS: 1b, 2b, 3a, 4d, 5c, 6a, 7b, 8c, 9d, 10a.
9. What is the highest marginal tax rate for individuals in South Africa? a) 35% b) 40% c) 42% d) 45% 10. At what age can you claim a primary rebate on your income tax? a) Any age. b) 65 c) 70 d) 75
Planning Perspectives
Life cover– is it part of your financial plan?
Palesa Tlholoe
19 THE concept of insuring one’s life is still frowned on by some South Africans, who think of it as throwing good money away. Yet those same people are happy to pay car insurance! Maybe it’s an indication of our materialistic nature, or simply a lack of understanding. The truth is that life insurance is a critical part of a sound financial plan, designed to protect your family’s future in case the worst happens. Here are some reasons why. It protects your income and assets There’s a popular misconception that your house and car are your biggest assets. Wrong! Your biggest asset is your ability to earn an income. If you have adequate cover on your life, the car and house you bought on credit will be paid off if you die. Your family will also receive a monthly amount or a lump sum, allowing them to maintain the lifestyle that they are accustomed to. Death is not the only thing to worry about. It can be equally devastating if you are suddenly unable to work due to illness or disability. You might be lucky to earn disability income from your employer, but this might only be 75% or less of your normal salary. With life cover that includes income or lump-sum disability insurance, you’re essentially protecting your pre-disability income, which means you and your family can continue to live as you did before the illness or accident. It keeps your business going Starting a business is one of the main wealth-creation strategies, but it’s not easy: about 70% of start-ups fail within the first three to five years. If you do not manage to nurture your business through that bumpy first stage, life insurance becomes an accessible tool to create
and transfer wealth to the next generation. There are other important insurance products to consider. A business partner who dies or becomes disabled can affect the cash flow and the value of the business; likewise, creditors can panic and recall their funds. In either of these cases, a contingent liability policy will pay the debts of the business; keyman insurance will assist the business to fund a replacement partner; and a buy-and-sell policy will help the remaining partners buy the shares of the deceased at a fair value. The business can continue with minimal financial impact, and even if your descendants won’t be involved with the business going forward, they’ll be secure thanks to your life cover. It helps wind up your estate Estate duty, capital gains tax, transfer duty, executor’s fees: these are just some of the costs levied at death. When you pass away, your estate gets frozen and winding it up can take months or even years. During this time, your family will have no access to the funds in the estate. Your life cover policy, however, is immediately accessible and will either pay directly to the beneficiaries or into the estate bank account to take care of outstanding costs and help avoid delays. BOTTOM LINE You need life cover! But calculating how much depends on a variety of factors, such as income, business interests and the other elements in your investment portfolio. A certified financial Planner will be able to help you find the sweet spot – ensuring you’re protected no matter what, but not spending a cent more than you need to. Thloloe is a Certified Financial Planner and co-founder of Imvelo Wealth
INFORMATION
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Here are sources that can help you with financial education, give you more information on savings and investments, and afford you recourse if you have a consumer complaint or a complaint against a financial services provider
FINANCIAL EDUCATION Financial Sector Conduct Authority MyMoney Learning Series https://www.fscamymoney.co.za South African Savings Institute #WaysToSave https://waystosave.co.za/ BANKING Ombudsman for Banking Services ShareCall: 0860 800 900 or phone: 011 712 1800 Email: info@obssa.co.za www.obssa.co.za CONSUMER ISSUES National Consumer Commission Toll-free: 0860 003 600 or phone: 012 428 7000 Email: complaints@thencc.org.za www.thencc.gov.za Consumer Goods and Services Ombud ShareCall: 0860 000 272 Email: info@cgso.org.za www.cgso.org.za
FINANCIAL ADVICE Ombud for Financial Services Providers phone: 012 470 9080 or 012 762 5000 Email: info@faisombud.co.za www.faisombud.co.za INVESTMENTS Financial Sector Conduct Authority ShareCall 0800 110 443 or 0800 202 087 info@fsca.co.za www.fsca.co.za LIFE INSURANCE Ombudsman for Long-term Insurance ShareCall 0860 103 236 or phone: 021 657 5000 Email: info@ombud.co.za www.ombud.co.za MEDICAL SCHEMES Council for Medical Schemes MaxiCall: 0861 123 267 Email: complaints@medicalschemes.com or information@medicalschemes.com www.medicalschemes.com
Credit Ombud MaxiCall: 0861 662 837 or phone: 011 781 6431 Email: ombud@creditombud.org.za www.creditombud.org.za
RETIREMENT FUNDS Pension Funds Adjudicator ShareCall: 0860 662 837 or phone: 012 346 1738 Email: enquiries@pfa.org.za www.pfa.org.za
National Credit Regulator ShareCall: 0860 627 627 or phone: 011 554 2600 Email: complaints@ncr.org.za or (debt counselling) dccomplaints@ncr.org.za www.ncr.org.za
SHORT-TERM INSURANCE Ombudsman for Short-term Insurance ShareCall 0860 726 890 or phone: 011 726 8900 Email: info@osti.co.za www.osti.co.za
TAX Tax Ombud ShareCall: 0800 662 837 or phone: 012 431 9105 Email: complaints@taxombud.gov.za www.taxombud.gov.za PROFESSIONAL ORGANISATIONS Fiduciary Institute of Southern Africa (FISA) phone: 082 449 2569 Email: secretariat@fisa.net.za www.fisa.net.za Financial Planning Institute of South Africa (FPI) Phone: 011 470 6000 Email: info@fpi.co.za www.fpi.co.za South African Institute of Tax Professionals (SAIT) Phone: 012 941 0400 Email: info@thesait.org.za www.thesait.org.za FINANCIAL DATA ◆For ◆ the latest financial market indicators, go to https://www.iol.co.za/businessreport/market-indicators ◆For ◆ the latest quarterly unit trust performance, go to https://www.iol.co.za/ personal-finance/collective-investments ◆To ◆ look up performance of a particular unit trust fund go to https://www.iol.co.za/ personal-finance/fund-look-up
