You can buy life cover quickly online, but some financial advisers say ‘direct’ is actually more expensive than that from traditional sources. Picture: 123RF/Alistair Cotton
You can buy life cover quickly online, but some financial advisers say ‘direct’ is actually more expensive than that from traditional sources. Picture: 123RF/Alistair Cotton

Buying life cover directly through a website or an app is often touted as being quick and easy.

It can be, if you know what cover you need and if you know what to look for in a policy document.

But even if you don't, it is much better to have some cover rather than none at all, so signing up for some cover online is probably better than sticking your head in the sand.

Direct cover has been advertised as being cheaper as it cuts out the adviser cost. The jury is out on that as many factors are at play, but it is significant that one of SA's first direct insurers, 1Life, is now offering its cover through a platform targeted at financial advisers.

Kobus Wentzel, head of distribution at 1Life, says 1Life Vantage life assurance and investment platform is a paperless, cloud-based mobile application that can deliver a life policy in 35 minutes, giving advisers more time to focus on advice and drawing up a financial plan for you.

Wentzel says getting a life policy from a traditional assurer through your financial adviser can take between three and five weeks.

Depending on the commission structure chosen by your broker 1Life's cover through an adviser can be slightly cheaper than buying direct, he says.

Peter Castleden, CEO of one of the new direct insurers in the Sanlam group, Indie, says Indie's premiums are as competitive as if you obtained cover through a comprehensive, underwritten adviser-led process.

Independent financial adviser Gregg Sneddon, the founder of The Financial Coach, is sceptical because over time he has tested his own life cover premium from a traditional insurer - with the broker commission excluded - against the cost of cover from a variety of direct insurers, and has always found the direct offering is more expensive.

He says the commission amounts to 30%-35% of the premium on cover you buy through an adviser.

Bonuses or cash-backs can also cloud premium and cover comparisons.

Castleden says Indie offers a wealth bonus - a percentage of your premiums invested - declining as you age, and accessible at 10% every five years and the balance when you turn 70.

Devon Card, a certified financial planner at Crue Invest, says he recently did a comparison of premiums and cover for a client who did not want to lose a cash-back bonus on a direct policy. The exercise showed the man was essentially prefunding the bonus through higher premiums.

Famida Singh, head of Old Mutual Direct Life, says Old Mutual does not offer cash-backs, but if you are entitled to such a benefit you should know how this is funded.

There is much value for you in using an adviser to get life cover. One valuable service is that an adviser will help you work out just how much cover you need and guide you through the underwriting.

Singh says Old Mutual's direct products sold though iWyze Life and Old Mutual Life are for consumers who have what is known as a "single need" for life cover as there is no advice. They suit younger, healthier people, she says.

Consumers who need advice should get cover from Old Mutual's Greenlight Life.

Working out how much cover you need isn't impossible for the lay person, but it becomes more difficult if you have a family, especially a complicated one involving an ex-spouse, home loan and/or a business.

Sneddon says it is not impossible to determine how much cover you need without advice, but it is like fixing the toilet - if you are prepared to read the instructions you can do it yourself but it will take time and you may prefer to pay a plumber to do it.

Life assurers ask medical questions and subject you to medical tests to underwrite or rate your risk of claiming to a greater or lesser extent.

Direct insurers typically make the process of signing on easier by asking fewer underwriting questions.

Singh says Old Mutual's direct cover is fully underwritten but it is a simpler product, powered by online, "robo" underwriting. The iWyze process can be completed in 12 minutes, she says.

Greenlight's cover, however, may involve completing an underwriting questionnaire if your cover is less than R1m, or answering questions and going for tests such as those for HIV, smoking and cholesterol.

Castleden says the level of underwriting can affect the cost - cover that is not underwritten, such as funeral insurance, is typically the most expensive cover.

You can buy life, disability and funeral cover from Sanlam Indie which is fully underwritten but requires only that you answer some online questions - and you may be randomly selected for a blood test done by a nurse who will visit your home or workplace.

But Castleden says some people will not qualify for cover with Indie, for example someone who has had a heart attack. A small percentage of heart attack survivors may, however, qualify for cover with a traditional insurer after a comprehensive medical.

Wentzel says 1Life Direct's insurance has comprehensive underwriting questions and 96% of applicants are accepted immediately pending the outcome of an HIV test you can do at a pharmacy.

You can also get up to R500,000 cover with limited underwriting and no HIV test, but the cover is more costly, he says.

"The more open-ended and broad the initial underwriting questions are, the higher the risk of you being subject to tricky exclusions and refuted claims at claims stage," Castleden says.

Helping you find the cover that's right for you

A good adviser will not only help you establish how much life cover you need but also whether you need income protection or lump sum disability. You should also benefit from an independent expert adviser's due diligence and selection of suitable cover from the range in the market.

Devon Card, independent financial adviser at Crue Invest, says many people think financial advisers are just out to sell them policies. But a good adviser should help you understand what you are paying for so that you don't find out too late that the cover was inappropriate.

A good adviser will help you find out:

• What percentage of the assurer's claims are paid;

• The exclusions on your cover;

• Any loadings on your premium;

• The way premiums will escalate, how long before there could be a big increase and when a premium increase could make cover unaffordable;

• How much more cover you can get without new underwriting if at a later stage you want to increase your cover;

• Whether benefits such as disability or dread disease cover are accelerated benefits - that is, early payments of the life cover, which, if claimed, will reduce the cover paid on death;

• Which insurers have particularly good benefits for illnesses prevalent in your family; and

• When an insurer has a new offering you should consider.

Disability and dread disease products can be tricky to navigate, especially if you have any illnesses or injuries or are no longer young and healthy.

Financial Coach adviser Gregg Sneddon says he is currently arguing with a life assurer that wants to load the policy of a tall, big man because its view of his body mass index is that he is obese.