REVIEWING YOUR POLICY (2)

In my previous article I looked at the old-school approach to risk assurance policies and highlighted some areas of concern that the latest policies are trying to avoid.

The reason for this is because most life cover premiums are higher than necessary because you are sold an indiscriminate lump sum of assurance to cover many different needs with different values at different times of your life. Not only is this costing you too much, it is also probably inappropriate for your needs.

BrightRock, a comparatively new kid on the risk life assurance block, has made this claim.

It says that, as a result of the traditional “lump-sum” structure, your cover becomes increasingly unaffordable, resulting in your reducing or cancelling it in later years. Having paid from day one for the cover, you then sacrifice it at the very time you need it most.

The BrightRock claim follows the publication last year of research undertaken by True South Actuaries & Consultants, on behalf of BrightRock, which showed that many people who bought seemingly “cheap” life assurance when they were younger faced losing their cover as their premiums escalated above the inflation rate and became increasing unaffordable. So, if you missed last week’s article, just click on the older posts link below, otherwise, read on for some more information on the kind of features you should be looking out for in your policies.

The overview principle is that a wisely chosen policy is one that can adapt with your needs.

Each component of cover within your risk assurance policy should exactly match the behaviour and trajectory of each specific financial need you want to protect, Schalk Malan, executive director at BrightRock, says.

For example, your policy should cover your children’s education to the extent, and for the period, that cover for that particular expense will be required, he says. At the same time, your policy should be sufficiently flexible for you to increase other cover you require as your needs change.

1. You do not have to choose a single rate at which your cover and premiums will increase.

2. Your risk assurance premium increases or decreases should be set independently for each need, preferably within the same overall policy.

3. Where a financial need decreases, as is often the case with cover for debt or for replacing your income in the event of disability, the cover can decrease and fall away completely once it is no longer needed.

4. Your premiums can be adjusted and redirected to meet the changing needs of your risk cover. For example, premiums that pay for debt cover or cover for your children’s education can be redirected to buy more dread disease cover or for estate planning later in life, without your having to undergo another medical test.

5. You should be able to buy more cover for needs that arise after you bought your policy without having to undergo a medical test, or you have to undergo fewer tests.

Malan says: “[Consumers] should be looking for cover that isn’t packaged in rigid boxes that grows at a set rate over time. Instead, with your financial adviser, you should tailor each component of cover to exactly match the behaviour and trajectory of each specific financial need you want to protect.”