Illustration: Colin Daniel

One of the main factors that will and should influence you when shopping for risk life assurance that will pay a benefit if you die or are unable to earn a living as a consequence of severe illness or injury is the cost of the assurance.

New research undertaken by True South Actuaries & Consultants shows that this does not mean you should simply look for the cheapest initial assurance premium on offer.

It also means that you need to consider how your life assurance is structured to meet your ongoing and changing needs.

True South is the consulting company that also undertakes research on behalf of industry body, the Association for Savings & Investment SA (Asisa). This research confirmed that South Africans are dreadfully under-assured when it comes to ensuring their dependants will be able to maintain their lifestyle if the unexpected happens.

True South undertook the new research on behalf of new life assurer on the block, BrightRock. Its brief was to investigate the consumer implications of the various premium pattern options that are available from South African life assurance companies.

The research was based on information from four unnamed major life assurers.

Actuary Paul Zondagh of True South says the research shows that if you simply pick the lowest initial premium, it will probably come with the most aggressive future increases, with two consequences:

* You will pay more in total over time, both in nominal values and also in present-day values adjusted for inflation. The difference in the total amount you could spend on premiums between an initial “cheap” and an “expensive” premium policy can be very dramatic, depending on the term (number of years), your age and the assured amount when you take out the assurance.

* “Cheap now, expensive later” premiums will take up a greater and greater proportion of your income and will probably become so expensive over time that you might not even be able to afford the future premiums.

“This could lead to a forced lapse of a policy, the effect of which could be exacerbated if your health has deteriorated at that point and you are unable to find alternative cover, when you could possibly need it most,” Zondagh says.

If you suffer from a disabling disease when you are older and you can no longer afford to pay the high premiums, you will not be able to switch to another assurer because it will either not offer you assurance or, if it does, could load the premiums to take account of your illness and/or exclude the illness from any benefit payment you would otherwise receive.

The average age to which a South African male now aged 20 will live is 59 years and seven months. A female aged 20 can expect to live, on average, to age 66. These figures are affected by Aids, but if the Aids figures are excluded by using the last mortality tables before the pandemic, the average age of death of both a 20-year-old male and female is 72 years and nine months.

Suzanne Stevens, BrightRock’s executive director: marketing, says research indicates that many chronic conditions, such as hypertension and diabetes, are more likely to manifest as you get older. This would mean that the likelihood of your being able to get cover with no exclusions or loadings diminishes. So later in life, when you need your cover, it would possibly be when the cheap initial premiums have become unaffordable.

Schalk Malan, executive director: actuarial at BrightRock, says the findings of the True South study reflect “our inherent concern about the sustainability of some aggressive ‘buy now, pay later’ premium patterns commercially available in the South African marketplace. The danger is you will lapse your policy.

“At BrightRock we believe if a policyholder buys cover for long-term financial needs, it’s key that the cover stays the course. During that journey the policyholder needs to be able to afford the premium options and their effect on share of wallet over time.”

He says BrightRock has modelled its products on overcoming the affordability problem revealed by the research by introducing needs-matched assurance that changes dynamically throughout a policyholder’s lifetime.

“The premium for assurance needs that are no longer needed, such as education of children, falls away, and the premium for needs that remain long-term, such as estate duty or support of a spouse, is set at a rate that remains affordable as a percentage of wallet. This approach gives policyholders relevant cover that matches their precise needs, cutting out unnecessary waste, and ensures maximum premium efficiency and sustainability,” Malan says.