Articles

What Lego and Life Cover Have In Common

It’s often said that life insurance isn’t bought, it’s sold. And there certainly is some merit in that statement. The biggest problem is that because life insurance is a grudge purchase, we want the entire process over as soon as possible! Because we are too happy to get it over and done with, in our haste we miss things that can be crucial at claim stage. Here is one of those things that is often missed, and could be financially crippling.

When you take out a life insurance policy you can add more than just a death benefit. You are able to add disability cover, critical illness, physical impairment, even funeral cover and income replacement.

It’s really like taking a bunch of Lego blocks, you played with as a kid, and building out a house to protect yourself, one brick at a time.

If you open up your life insurance policy schedule it might look something similar to this:
Death Benefit R1 000 000 R109 pm
Critical Illness Benefit R500 000 R189 pm
Disability Benefit R500 000 R79 pm
All the benefits are noted, along with the amounts of cover you have, and the premiums you pay for those benefits, on a monthly or annual basis.

Pretty straightforward right? Well, not necessarily...

You see, the benefit blocks you have in your policy can either be ‘Stand Alone’ or ‘Accelerated’ benefits.

So what’s the difference and why is this even important?

‘Stand Alone’ benefits aren’t impacted by another benefit block claim. They stand independently from one another.

Let’s look at the example using the above benefits and assume it’s your policy. You have R1 000 000 life cover, R500 000 critical illness cover and R500 000 disability cover, right?

Now let’s assume you claim the full R500K under your disability benefit block. If your benefits are ‘Stand Alone’ your life cover and critical illness cover benefits will remain intact and separate from one another.

But if your policy benefits are ‘Accelerated’ then that R500K disability claim is going to reduce your life cover benefit of R1 000 000 by R500 000 which means you would only be left with R500 000 life cover.

Can you see the potential problem this could cause?

Imagine for a second you took out your life cover policy to cover a bond on your house. Let’s say your bond is R1 000 000, you have a disability claim of R500K and find out that, as a result, your life cover benefit has been reduced to R500K.

Massive issue! You now don’t qualify for more life cover as a result of your disability, you are still sitting with a bond of R1000 000, but are only left with R500K life cover.

You are probably asking yourself the following question right now: Why would someone even opt for an ‘Accelerated’ benefit? ‘Stand Alone’ seems like the logical choice.

The answer is price. ‘Stand Alone’ benefits are more expensive than ‘Accelerated’ benefits.

If you want the rest of your Lego blocks to remain standing, if one topples over, you need to pay more for that peace of mind and go the ‘Stand Alone’ benefit route.

If you don’t mind your life cover Lego block being cut in half, if your disability block topples over, then you pay less.

The issue is that when guys sell life insurance, they are often trying to beat your current premium, and look to sell you inferior benefits - not apples with apples.

If you are going to switch out your life cover make sure you do it on a ‘like for like’ basis and if you are taking out life cover for the 1st time, make sure you understand the impact of claims within your benefit blocks.

If you don’t know if your current policy has ‘Stand Alone’ or ‘Accelerated’ benefits, do yourself a favour and call your insurer.

You don’t want to find out at claim stage - it’s far too late then.

Thanks for taking the time to read this article. Are you in the market for a quote? Apply now

The I-Hound