File Image: IOL
File Image: IOL
Martin Hesse
Martin Hesse
WORDS ON WEALTH

There is still a wide perception among the public that life insurance is just that: insurance on your life that pays out when you die. But it is far more - disability (income protection) cover and dread disease cover are now essential components, so perhaps “life insurance” is an outmoded term. And while younger people with no dependants may not need life cover in its narrowest sense, they should not ignore the vital benefits the broader “package” offers.

“Life happens,” says Johann Minnie, the managing executive of client and adviser experience at Liberty, “and young people are exposed to dangers that can leave them disabled.”

He says that medical and technological advances have ensured that more people survive serious motor accidents and illnesses such as breast and prostate cancer. “Take ambulances, for example,” Minnie says. “A person involved in a motor accident, who may in the past have died on their way to hospital, has a far greater chance of survival thanks to the hi-tech life-saving equipment in today’s ambulances.”

But what happens then - if you survive to live another day? What of the enormous challenges you will probably face? You may be permanently disabled and, as a result, unable to earn a living, with your whole life ahead of you.

Liberty’s claims statistics, the latest of which will be released in a few weeks, show a large shift towards higher dread disease and disability claims in younger people, Minnie says, underlining just how important it is to consider the “whole package”.

Unlike in the past, when the different types of cover were bought and sold separately, new-generation life insurance products incorporate life, disability and dread disease components in a single offering, with the flexibility to let you adjust these components as you age or your life circumstances change. Bells and whistles include features such as Liberty’s Future Protector, which allows you to be underwritten now for life cover you take out in the future.

One requirement of such a package is that it needs regular review and adjustment. “Just as you go for an annual check-up with your family doctor,” Minnie says, “it’s a good idea to have an annual financial check-up with your adviser, particularly as you reach middle age. This would involve a review of both your investment portfolio and your risk policies, which are equally important to your financial well-being.”

The financial planning process is fundamentally changing, he says, with advisers needing to take a more holistic approach to the individual life journeys of their clients.

Sadly, too many people are cancelling policies or letting them lapse, without realising the consequences, Minnie says. If household income comes under pressure, one of the first things people do is cancel their insurance policies. If they need to curb spending and face the choice of cutting back on material things such as clothes or cars, and cutting back on insurance, it’s often the insurance policy that’s the first casualty.

Sonja Visser, the chief executive of African Unity, believes that cancelling an insurance policy should be the last resort and that you should first chat to your adviser or insurance company if you are considering such a move.

“Most insurance providers understand this predicament and will help you find ways to restructure the policy to reduce the premium. Some will allow you to take a premium break for a few months and make up the shortfall afterwards,” she says.

She says that if you cancel your policy and start a new policy when your circumstances change, you could end up paying higher premiums or be excluded for certain benefits, depending on your age and health.

Advisers can play their part in warning against the dangers of cancelling a policy, but so too can the life insurers, providing incentives for policyholders to stay insured.

In this regard, Liberty has just introduced its Wellness Bonus, which not only rewards you for being on a recognised wellness programme (Liberty does not have a wellness programme of its own), but incentivises you to stay insured by paying you cash-back bonuses after five years.

PERSONAL FINANCE