03 July 2013

Questions to ask about life insurance cover

If you are feeling uncertain about your life insurance options, you are not alone. Here are 11 important questions to ask your financial advisor.

Many people are not confident about making important insurance decisions on their own. Perhaps more frightening is that very few policy holders can answer basic questions about the terms and benefits of their life insurance cover.  

Andre Froneman, product specialist at Altrisk, a specialist long-term risk product provider, says choosing the right life cover for your unique needs is one of the most important financial decisions you can make.

“The reality is that life insurance can be complex, full of technical terms and jargon,” Andre says. “There is no one better suited to help you with your financial planning than a professional financial advisor.”

Rafieq Saville, principal of Professional Financial Solutions in Cape Town says consumers are entitled to objective advice when it comes to choosing insurance products.

“Choosing the right life cover for your needs and those of the loved ones you leave behind is exceptionally important.  It can mean the difference between leaving a legacy of dignity for your family, versus a legacy of debt and hardship,” Rafieq says.

This is why a DIY approach to insurance is never a good idea. A financial advisor can offer expertise on a wide range of insurance products and will have in-depth product knowledge.

“Don’t be afraid to ask for product comparisons, details about the insurer and for more in-depth technical information to be translated into easy to understand terms. Your advisor should have a real interest in leading you to a better understanding of your options so that you can make an informed decision,” says Rafieq.   
Altrisk suggests asking your financial advisor these 11 important questions:

1. Who am I buying from?
Before getting into the important questions of how much life insurance you need or whether you want temporary or permanent cover, do some homework on the different companies.  You need to know that you are dealing with a credible insurer with a good track record when it comes to claims and client service.  While you are at it, you should also ask the advisor about their credentials to ensure that you are dealing with a reputable member of the industry.

2. How is my need determined?
How much life insurance you will need depends on two factors: how much you will need to pay off your debts in the event of death, for example a home loan, and how much your dependents will need to maintain the same lifestyle. Advisors should tell you how they calculate the appropriate amount of insurance for you.  It is crucial to understand how your need is determined, especially if you have unusual debts such as high medical bills.  

3. Are there different types of life insurance policies?

Term and whole of life are the two most common types of life insurance policies. A term policy provides cover for a specific time period, and can also provide cover for accidental or natural death.  A whole of life policy terminates on the death of the life insured.  

4. How will the life insurance policy work?
A life insurance policy can be owned by the individual whose life is being insured, or by another party. Ask about the basics of the policy, including how long the policy will last, what your premiums will be, if the premium will increase over time, whether there are any exclusions and loadings, and the reason for these.  

A loading is an additional charge on the premium that caters for a greater risk. It is applied when a life insurer believes that – based on evidence supplied at the underwriting stage - your health condition, hobby or work increases your probability of a potential claim in the future.

An exclusion is an additional clause applied to your policy, and means you’re not insured for that particular thing. This could be due to a dangerous hobby such as cave diving, or an existing medical condition such as diabetes or cancer.   

5. Will my sum insured grow over time?
he sum insured is the amount that will be paid out in the event of a claim, and life insurance benefit illustrations can provide several projections on the future value of your policy. These figures show how much the benefit amounts for the relevant selected benefits will increase regardless of fluctuations in the market or any fiscal problems that the insurance provider may encounter in years to come.

6. What happens if my health changes?
A life insurance policy is normally underwritten at the stage when you apply for it.  This means your cover will not change should your health worsen after the policy has been issued. This fact also demonstrates why it is so important to get life cover while you are young and healthy, so you can enjoy the maximum range of benefits at the best possible premium.  

If you don't get normal rates when you apply for the policy – you may have a pre-existing health condition - you need to ask if there is an option to improve on that rating if your health improves.  For example, quitting smoking and losing some weight could see your risk rating improve, and your premium could come down.

7. What is covered if I become disabled?
Ask your financial advisor whether your policy has any disability benefits and what they are.  If you are considering disability cover as part of your life insurance cover, the general rule of thumb is to include lump sum cover. This will provide relief for immediate expenses should you become disabled. An income replacement benefit will cover your salary, which is invaluable when you are unable to work for a lengthy period of time.

8. Will the death benefit adjust for inflation?

Your death benefit should increase over time.  A R1 million death benefit may seem enormous today, but 30 years from now it will be worth less after adjusting for inflation. Time alone can severely erode your life insurance policy. While some policies automatically adjust to keep pace with inflation, some companies sell that feature as an additional option. Before signing a policy, ask your financial advisor if the policy automatically factors in voluntary increases and allows you to buy more insurance later on, if necessary.

9. What happens if I can't pay the premium?
It is important to know what options are available to you, should you run into financial trouble. Policy holders who can't pay their premiums typically have a 30-day grace period.

Some insurers may cater for such times. Altrisk, for example, offers a Crisis Waiver benefit that waives the premium due on a policy for a specified number of months, should a crisis event occur. These events include the death of a spouse, divorce, hospitalisation, retrenchment or when there are insufficient funds in your bank account to cover your debit order to meet the current premiums of the policy.

10. What happens as I age?

Your life insurance needs will change as you grow older, and this is why you need a financial advisor. They can offer informed advice on life cover suited to your particular life stage and personal circumstances.  The terms and conditions of your policy might also need to change.

11. How much information should I give when applying for life insurance?
Always remember the importance of full and accurate disclosure on your application form as this affects the risk assessment, the premiums charged, and the terms and conditions of the final contract.  If you are unsure about any aspect of your application or the terms of your cover, discuss these concerns with your advisor, and ensure that no matter what life throws at you, you have all your bases covered.

Press release, Altrisk

(Picture: financial advice from Shutterstock)


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