It is very important to invest in a safe long-term financial plan while you are still young. Purchasing a long-term insurance policy or product is one way of saving money and providing for either retirement, or for your dependents upon your death or disability.
Long-term insurance policies can also be used as security to cover your debt upon death or disability.
Long-term insurance is therefore insurance that covers life-changing events such as death, disability or retirement. There are various long-term insurance products and it is important that you as the consumer understand the various products and how these products suit your specific situation, risks and needs. Below are a few things you, as the consumer, should know about:
Types of Long-term Insurance
Long-term insurance comprises the following main classes: life insurance, disability insurance, funeral insurance, fund insurance, sinking fund insurance and health insurance. Long-term insurance can also be a combination of one or more of these main classes listed above.
Under life insurance there is whole life cover, which is ordinary life cover valid until the date of death of the policyholder or the life assured or on the surrender date of the policy. In addition, there is also universal life cover, which is similar to whole life cover, however it includes an investment component. The returns on investment are dependent on the investment vehicles used. Furthermore, there is also endowment life insurance, which is in effect a savings plan designed to pay you during your lifetime rather than your beneficiaries after death. Term life insurance or fixed insurance is ideal if you need to provide life cover for a set period of time, for example while paying off your mortgage loan. After the agreed period of time, the cover simply expires or the policy ends in the event of death. It is important that consumers know the advantages and disadvantages of the various products as the fixed/term life insurance is a risky product, with no cash values and the value of the sum insured fluctuates on a sliding/reducing scale over the term of the policy.
Funeral insurance covers the expenses and costs incurred for burial and provides peace of mind that you are not burdening dependents with the costs of your death. This product can either cover the costs of the funeral or a lump sum can be paid to the beneficiaries. Funeral insurance policies may either
have an investment portion or just funeral with no investment portion.
There are various types of retirement annuities, such as conventional or fixed-asset annuities which pay the policyholder (in return for a monthly premium) a fixed amount of money at maturity of the policy for the rest of the policyholder’s life. Living annuities work slightly different in that you, the policyholder, carry both the investment and mortality risk. Composite annuities on the other hand are a mixture of conventional and living annuities and to some extent offer the best of both as it provides you with a flexible income from the living annuity portion and a fixed income from the conventional annuity.
Disability insurance is usually added to life cover as a rider benefit and covers you in the event of disablement, which can be temporary or permanent.
There is a capital disability cover, where a lump sum is paid only upon proof of permanent disability (not greater than the life amount) and then there is an income protector disability cover that provides you with a monthly income with an annual increase.
If you are permanently or temporarily disabled, it can
replace your full salary until date of death or date of
recovery or date of maturity, whichever comes first.
It is important that you fully understand the terms and conditions, as well as the definitions when claiming a disability benefit.
Health insurance is the business of providing or undertaking to provide policy benefits under health policies. A health policy is a contract in terms of which a person, in return for premium, undertakes to provide policy benefits upon a health event. The amount paid is calculated according to what was done and not on how much it cost.
Sinking fund insurance is the business of providing or undertaking to provide policy benefits under sinking fund policies, which is a contract other than a life policy, in terms of which a person, in return for a premium, undertakes to provide one or more sums of money at a fixed or determinable future date as policy benefits.
It is imperative that you as the consumer understand the various products under the various classes of long-term insurance business to ensure that you purchase the long-term insurance best suited to your risk profile and needs. Furthermore, it is also important to fully
acquaint yourself with the terms and conditions, exclusions and definitions.
Each and every insurance contract should have a
30-day cooling off period in which time you, the policyholder or the insurer, can change your mind and cancel the policy without incurring any costs.
Alterations, amendments and/or cancellation of policy
It is imperative that you ensure your terms of contract are kept up to date, that beneficiary nomination forms are completed and updated as and when required. It is also recommended that you inform beneficiaries of such nominations and provide them with contact details and copies of the documents in order to ensure the benefits are claimed upon a life-changing event. If you do this through your broker/agent, it is your responsibility to follow up and ensure that the insurer has received the documents and that your policy files are updated accordingly.
Should you wish to cancel the policy, you will have to ensure familiarity with the terms and conditions of the contract as well as the cost implications of cancellation so that your personal interests are protected in the best possible way.
Role of the broker versus insurance company
The broker represents the interests of the policyholder, and tends to serve as an intermediary for one or various insurance companies. It is your responsibility as a policyholder to ensure that each broker or agent is registered with NAMFISA and that the agent or broker provides you with more than one quotation from various insurers in order to ensure a product is
best suited to your unique situation, risk and needs analysis. The broker, on your behalf, deals with the insurer to ascertain that the product purchased is the most suitable for your situation, needs and risk and also to ensure that all relevant documents are submitted to the insurer.
Important tips that you should know as the consumer:
• You have the right to direct access to the insurer and do not have to go through the broker/agent each and every time you have an enquiry;
• You should ensure that the application forms and other documents are a true reflection of your situation and that no blanks are left forcompletion by your broker/agent. When you sign the document, it should be the final version that gets sent to the insurer.
Other important matters for consideration
• It is imperative that you as the consumer are fully familiar with the terms, conditions and exclusions of your contract.
• You should keep copies of the documents in a safe place.
• You have the responsibility to give true, correct and complete information so as to avoid any repudiation of claims.
• You are entitled to a grace period, meaning that if you miss a payment you should still be covered for that month. As policies differ, make sure to acquaint yourself with what the grace period on your policy is, however it is the consumer’s responsibility to ensure consistent premium payment to avoid any disappointments when a claim needs to be submitted.
• If a life policy is ceded for the benefit of a spouse, child or held in trust for any other person and the person has been unable to pay the premium, arrangements can be made with the insurance company to convert such a policy into a paid-up life policy or borrow from the insurance company money necessary to keep such a policy in force or apply the value of any bonuses accrued on such policy to pay any premium that has fallen due.
• A life policy can be used to afford protection during life, death, or the realisation of a policy. In other words, should you become insolvent, die or surrender the policy, only N$50,000 will be protected from debtors, other claimants, etc.
• FSB Consumer Education
• Long-term Insurance Act (No. 5 of 1998)
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– Warren Buffet