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Making Sure Your
Stockings Are In Order
T
he toll that road deaths and violent crime alone take on our country’s population is anything but a National Secret. A survey conducted by Old Mutual highlights the fact that as many as 41% of all deaths in people under the age of 39 years of age in South Africa are accidental or crime/ violence related. No one is immune to any one of these dangers faced by all of us living in present day South Africa. Furthermore, these dangers increase during the festive season and detract severely from the true meaning of this special period. Thus the question needs to be posed that if the unthinkable were to occur, would your family have sufficient income to keep them afloat after the turmoil has subsided?
Underestimating A True Gift This Season Keeping the above statistic in mind, it is difficult to understand why most people underestimate the importance of having adequate life cover; whether it be for providing for dependants in the event of death or ensuring capital on disablement or illness. A leading
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reason for people overlooking the adequacy of their existing life cover is the general perception that “it will never happen to me.” The truth of the matter is that life is unpredictable and death and disablement could occur at any time. With disablement, you could lose your ability to earn an income, which would naturally bring the following questions to mind: • How will you and/or your dependants survive without an income? • If you are presently finding it difficult to cope financially, can you imagine your family trying to cope without your income?
Empty Stockings, Empty Promises The advent of ‘pure risk’ life cover with the option of standalone benefits has made life cover a very topical subject in recent years. What is meant by pure risk, is that risk cover has not been combined with a savings element and investors have the option to manage their risk and investments separately. Previously, a portion of the monthly premiums of life cover investments was allocated to the cash (savings)
Text: : Duncan Wilson, Brendan Connellan – NFB Financial Services Group Image: © iStockphoto.com
value of the investment. The only way to access this cash value however is by surrendering the contract, thereby losing the life cover! On death, this savings portion is also lost as only the cover amount pays out. Essentially one is paying for two separate benefits, of which only one could ever be accessed. New products offered in the market however, endorse savings outside of the risk product, so that upon death, you receive both the sum assured of the investment as well as the investment value. Another advantage is that these new products are generally more cost-effective, with greater benefits available.
Improving The Gift Disability and Severe Illness benefits were previously only available as ‘secondary’ benefits. This means that you would have to buy life cover before being able to buy any other benefits. Claims under disability or illness benefits would then be paid out of a portion of the life cover and the life cover would then be decreased accordingly - these are known as accelerators. An example of an accelerator benefit would be
where one can have R1 million life cover with a R700,000 disability accelerator benefit attached to it. If the life assured becomes disabled and receives a full pay out the live cover is reduced by R700,000, leaving R300,000 life cover. With standalone policies, these benefits can now be purchased separately from life cover. Although both accelerators and standalones have their own advantages, the introduction of standalones mean that investors are now able to meet their immediate needs without being forced to take out unnecessary life cover. Most traditional life policies have the option of rider benefits. This means that life, disability and dreaded disease can be linked together in any
combination to suit the insured’s need. Clients are protected against the risks that they have taken cover for. However because it is a rider, the client is covered against what occurs first, death, disability or severe illness. After this, the cover has been used and the client is not covered against further risk. For this reason, rider benefits are cheaper than standalones.
Multiple Stockings Other benefits of these pure risk products also include the ability to have more than one life covered under the same plan, improved disability benefits, which have taken away the previously very subjective definitions of disability, and of course potential cost advantages!
Do not underestimate the importance of ensuring adequate risk cover or hesitate to reassess your current situation if you feel that you’d like to pay less on your monthly life cover premium, or if you simply feel that you have inadequate life cover.
‘Tis The Season To Be Jolly? This certainly will not be the case if one’s life cover is not in order. Murphy’s law is anything but merciful, as are the dangers faced by South Africans today. Remember to insure that future festive seasons are forthcoming for those you hold most dear.