Savvy analytics can save you cash
If you are responsible enough to worry about your and your family's future and take out cover to protect your income in the event of death or disability, don't just buy policies. Make sure you analyse exactly what you need and plug the gaps in any cover you enjoy as an employee.
This is the lesson Pranay* learnt when his adviser, Kate du Randt of Wynsam Wealth, reviewed his life and disability cover.
Pranay works for a listed company in Pietermaritzburg. His employer provides group life cover through his retirement fund, and he also had some policies in his own name.
In total, he was spending R2059 a month on cover.
Pranay's group benefits provide him with life cover equal to three times his annual pensionable salary and an income equal to 75% of his pensionable salary should he be disabled.
However, the cover is subject to a six-month waiting period.
He also enjoys a waiver on his contributions to his retirement fund and life-cover premiums should he become disabled, taking his total disability cover to 90% of his pensionable income.
Pranay's personal income-protection policy is for 23% of his salary, but has a one-month waiting period only.
Du Randt identified a gap in his disability cover - after the first month when Pranay would have sick leave, his income-protection benefit would be only 23% of his salary until the seventh month when his group life cover would become payable.
At this point, he would be covered for 113% of his salary, but the life companies would apply the rules of aggregation and pay only 100% of his pensionable salary.
Life companies apply the rules of aggregation - adding up the benefits you will get when you are disabled to ensure that you are not placed in a better position or enriched through a claim as this would make it more financially attractive for you to stay at home rather than go back to work.
Pranay took out the personal-income protection policy to try to plug the gap in his group life cover, but ended up paying for a product that is out of line with his needs. Du Randt says the adviser who sold him the policy should have done a better job of analysing his needs. She says advisers who sell policies sometimes do not understand your employee benefits and sell you personal cover that is not suitable.
In other cases, the adviser is a tied agent who can sell only one insurance company's policies, and the company may not have a product that is suitable. The adviser then sells the client the best thing they can offer, she says.
Du Randt found Pranay cover that offers him 100% of his salary in the event of either temporary disability or permanent disability after just a one-month waiting period for the first six months of disability.
She also replaced his personal cover with a policy that provides a payout of 10% of his income after a six-month waiting period to top up his group life benefit from 90% to 100% of his salary.
She took out decreasing-term life insurance to cover his bond, since his bond will decrease over time. It was a waste to pay for increasing cover on the bond.
After reviewing his cover, Du Randt saved Pranay R500 a month and gave him full instead of partial cover.
"Any person who is trying to plan ahead and have insurance should be commended. The problem is, if you are doing it wrong, not only are you wasting money you are going to have a nasty surprise when you come to claim," Du Randt says.
* Not his real name