Money Reporter | 04 June 2021
Matezwa's
Madrena`s
limited underwriting
Thousands of South African families have lost loved ones during the Covid-19 pandemic, and for many families the pandemic resulted in an unexpected loss of one or more breadwinners.
The loss of an income earner can have devastating financial implications for families if no provision was made for adequate life cover. Very often this results in significant financial hardship for families in addition to the emotional trauma caused by the loss of a loved one.
In 2020 there was an almost 37% increase in death claims against life insurance when compared to 2019, according to statistics released by the Association of Savings and Investments South Africa (ASISA).
In total 434 216 death claims were lodged and R727.9 million was paid out – an increase of 60% over the death benefits paid in 2019. This means that more than 400 000 families received a financial life line when they needed it most.
Hennie de Villiers, the deputy chair of the ASISA Life and Risk Board Committee, says more than half of the 434 216 death claims in 2020 were for funeral policies (266 321) while the rest of the claims were for life policies, credit life policies and other policies that provide life cover.
Why funeral cover is not enough
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IN NUMBERS Death claims for 2020 434 216 death claims lodged 266 321 of these were for funeral benefits 60% the increase in claims R727.9m paid out in death claims 400 000 the number of families who benefitted from life and funeral claims Lapses in 2020 10.2m policies lapsed 16% the increase in policies lapsed |
Funeral policies are popular among South Africans as they can generally be taken out by answering only a few questions, and without medical tests.
This type of cover – known as cover with limited underwriting – is also typically more expensive than life cover if you compare the cover amounts for the premiums paid. This is because the life company takes on significantly more risk when issuing a policy without comprehensive underwriting.
Funeral cover, however, is designed to only cover funeral expenses and not to replace the income a family breadwinner could earn. Once the funeral is over, families who have lost a breadwinner, and who have no life cover benefits to support them, will typically be forced to scale back their lifestyles unless they have already saved a substantial amount.
Hold on to your cover, especially in tough times
The pandemic and the lockdowns that followed have brought tough economic times for many South African families. Life companies provided premium relief assistance between March and July last year to help policyholders, whose earnings were impacted by the Covid-19 lockdown, preserve their risk cover and savings policies.
Unfortunately, millions of South Africans still cut back on what should be an essential – protection against events such as the death, disability or illness that take away a breadwinner’s income.
ASISA’s statistics show that 10.2 million policies that provide cover against these risks lapsed last year. This means that roughly the same number of families will not benefit from a pay-out should something happen to their breadwinner.
A policy lapses when the policyholder stops paying premiums for a risk policy that has no fund or investment value. The number of policies lapsed in 2020 increased by about 16% over the around 8.8 million risk policies that were lapsed in 2019.
De Villiers says while the increase in the 2020 lapse rate is concerning, it was to be expected given the high number of South Africans who lost their incomes during the Covid-19 lockdown period.
Ditching your cover in a time of heightened deaths and disability puts your family at financial risk and may be a decision you, or they, live to regret for many years. Instead, always try and reduce other expenses before considering dropping death and disability cover.
Replacing your cover when your finances improve may prove costly, as your life assurer is likely to charge you higher premiums for taking out cover at an older age than the cover you had in place before. In addition, you may face being excluded from cover for any conditions such as high blood pressure that you have developed since first taking out a life policy. Read more: What does it cost to insure your life against death, disability or severe illness?
De Villiers says: “Unfortunately, the true value of having long-term insurance cover in place is generally only realised during times of crises. Losing a second income when a family member dies, for example, can have a devastating financial impact on a family. For this reason policyholders should do their level best to hold on to the risk cover that they have in place.”
He encourages policyholders who are experiencing financial difficulties and who might not be able to afford their premiums to contact their financial adviser or insurer with urgency to discuss potential solutions.
“When approached, life insurers do consider possible ways in which to assist policyholders who may be struggling financially on a case-by-case basis,” he says.
