Within three days of launching, the new direct life insurer 1LifeDirect had sold 100 policies. Its pitch of cutting out the broker seems to have resonated with the public and the product is well timed in terms of last year’s furore in the life industry, which highlighted the role and cost of a broker.
1LifeDirect claims it can cut premiums by 22% by going direct to the public and avoiding broker commissions.
These types of claims by other direct insurers have in the past been a bit misleading because a part of the pricing of the policy is the way the company rates a person’s risk as well as its own book.
A company that rates risk correctly and has lower claims can offer lower premiums. This is particularly true in short-term insurance, where personal experience has shown that companies such as Outsurance and Dial Direct do not always beat broker-quoted rates. Some companies may, for instance, place a higher rating on divorced people or the number of kilometres you drive each month, so it pays to shop around.
I put 1LifeDirect to the test and compared it with my current level of life, disability and dread disease cover.
The problem is that it is difficult to compare like with like. Many life companies now use either level-term or age-rated policies.
With the age-rated policy the annual premium increase is based on a person’s age. This is to their benefit when they are younger, with minimal premium increases of between 2% and 3%, but after about 10 years the premiums start to rise more dramatically.
With level-term policies, clients are guaranteed to have no premium increases for the first 10 years, but their premiums are substantially higher than age-related premiums.
In my case, the initial quote for a level-term policy was 30% higher than an age-related one with the same company.
1LifeDirect guarantees no premium increase for the first two years, after which premium increases are limited to 5% a year for the first five years. Thereafter 1LifeDirect can increase the premium by up to 15%. This is a safety clause and in line with industry standards — for example, the level-term allows for premium increases of up to 25% after 10 years.
It is unlikely companies would actually invoke those maximums unless they wanted to see a mass exodus from their policies. They do, however, use them to adjust their customers’ policies in line with their age risk so their premium increases at this time could be substantially higher if their age risk requires it.
Having done a comparison with both age-rated and level-term quotes against 1DirectLife, the direct life insurer was 8% cheaper than my current age-rated policy (including my monthly policy fee).
Against a level-term policy, 1LifeDirect was a massive 33% lower, but remember that there is no premium increase for 10 years on level term.
Based on the fact that 1LifeDirect increases its premiums by 5% a year after year two, by year seven the two premiums would be the same. After a 10-year period, my total premiums paid to each company would be R49 800 to my current life insurer versus R45 000 to 1LifeDirect — an 11% percent difference.
Personally, 1LifeDirect would save me R25 a month or R4 700 over 10 years depending on which policy I compare it with, which is in line with my broker’s commission taken over 10 years. By going direct, however, I would not receive a needs analysis review or the assistance of my broker when making claims.
You need to make sure you know what you are buying and to decide what product will suit you best. The fact that you can get yourself insured in 20 minutes on the phone through 1LifeDirect could be of real value to you. Or, you may be someone who prefers to have a broker, as long as the additional cost is still value for money.