The longer you wait before you buy life insurance, the more it’s likely to cost you
Judy Barnes
One of the most important things you will ever undertake before shuffling off this mortal coil is purchasing life assurance. It’s a process likely to be complicated as everyone you know attempts to advise.
Because our date of death is such an unknown, we need to make provision for it. Having dependants means being responsible for their well-being. Money has to be there to look after children’s education or provide income for them in the absence of the breadwinner.
Outstanding debts, such as a bond on a house, amount to the same thing; so single people also need life cover. An aged parent may need special care that only a son or daughter can provide. Only they can’t provide it if they die before the mother or father. Solution: life cover.
Deciding on which cover is suitable necessitates a personal analysis, as everyone’s requirements and preferences are different. The old saying, “you get what you pay for”, is very true.
Let’s compare level term and whole-life policies. Life assurance companies always quote on the age at the next birthday. What’s more, be prepared for the fact that women’s premiums are lower. It isn’t because they have traditionally been paid less in the workplace; it’s because while men may be physically stronger, ultimately women live longer. Old-age homes overflow with many more women than men.
A level-term policy merely means the amount of cover chosen always remains level. So, if the term is 30 years, cover of R100E000 will still be R100E000 in 10 years’ time, and in 29 years’ time. In other words, there is no growth of the cover. Because of this, the premium is very low.
In a whole-life policy, the R100E000 cover will grow throughout the life of the policy (that is, the life of the person). From day one it will equal R100E000 but after 15 years it will be worth a lot more For this reason, the premium is substantially higher.
The following figures have been rounded off: a male who will be 25 at his next birthday would need to invest in the region of R130 per month for R100E000 cover with growth. He could opt for a level-term rider, which gives an additional R100E000 cover attached to the same policy for another R55 or so. So now he has R200E000 cover, half of which is growing, the other half which remains static, for a total of R185 per month. A woman of the same age and the same policy would have a premium of R152 per month.
Delaying the purchase of life cover can be a costly exercise. If a male is 35 he’ll pay about R203 for his whole-life cover, and R115 for the term, equalling R318 per month. A woman, R244. At 50, it will be about R596 for a man, and R445 for a woman. If you’re older, you’re considered a higher risk. Life assurance companies use mortality tables which say that if you have reached a certain age, you are likely to live to a particular older age. They are in the business of money, and very little is left to chance.
Other riders can be added to life policies in the event of disability, death by accident, and so on. These are not expensive and should be an integral part of the policy for maximum benefit. In the above examples they vary between about R7,50 and R38 per month for R100E000 cover.
Life cover can also be included in endowment and retirement annuity policies, where a maturity value is paid at the end of the term. In level-term and whole-life policies, the cover falls away at the policy’s term or claim at death.
If you are a person who loves jumping out of aeroplanes, you must declare this, and decide if you would wish to take extra cover for death by this sport. This is considered a hazardous activity, even if dedicated parachutists fiercely try to convince others that more people die in car accidents. You can anticipate paying in the region of R45 per month for R100E000 cover.
Hang-gliding, unlike parachuting, doesn’t have the benefit of two parachutes, so the policy rider is more expensive. Expect to pay double the above.
A medical examination will be requested depending on the circumstances. Usually this is for cover above a certain amount decided on by the assurance company. You may be asked for a medical for many other reasons though, and any serious ailments must be declared for the policy to be valid for a claim.
Once you have decided to enter into a life assurance policy, honesty should be uppermost in your mind. HIV testing has not yet become compulsory for every level of life cover, but that is not in the too distant future. An average maximum limit of R50E000 cover last year has dropped to R20E000 now. Some companies will not consider covering HIV-positive clients at all.
Electing to purchase cover without an HIV test, whether you are positive or not, merely means you won’t be covered for the first five years of the policy, anyway. So concealing your illness is pointless if you die within that period.
Assurance companies vary in their approach, but generally base their exclusions on whether you are in a younger (therefore more likely to be promiscuous) age group, or a higher socio-economic or educational strata.
Contrary to the assertions of cynics, the life assurance companies are not out to cheat you. The larger companies pay out hundreds of millions of rands in claims every year. Properly used, life assurance can be a blessing that no wise person should fail to consider.