Firstly, know that personal risk policies have no cash or surrender value! These insurance products do not include a savings element. They do not offer a surrender value at the end of the term or on the termination of the policy. Policies can, however, be ceded as guarantee to a third party (in certain events cover a large debt).

Personal Risk insurance covers 3 broad areas. These are:

• Life Insurance
• Disability & Dread Disease Insurance
• Medical Aid / Insurance

In our blog this month, we examine personal risk insurance. We look at what they are and what they cover. Most importantly, we look at why it’s important for you to be covered for all eventualities.

Life Insurance

These insurance products (policies) allow an individual to pay a monthly amount (premium) to an insurance company. In return, the insurance company promises to pay a lump sum in the event of the insured person’s death.

Whole life insurance products provide cover indefinitely (for your whole term of life). You may also opt to choose cover for a predefined period. Policies are usually valid until such time as you elect to cancel the policy, or stop paying your monthly premiums.

Life insurance provides you with peace of mind that insurance cover will be there when your family needs it. The policies pay a pre-defined value (in the event of the insured’s death and as long as premiums are paid.)

Life insurance is thus a very important part of personal financial planning. It becomes an available source of cash for a person’s dependants upon the insured’s death. Within a short period, the insurance company will make a lump sum payment to the designated beneficiaries.

Some of the the money will be used to settle immediate debts. The balance can pay for Your dependants’ living and education expenses for a significant period of time.

Disability & Dread Disease Cover

We all face a risk during our life time of becoming disabled due to an accident or illness. In some cases you might still be able to work. But if the disability is severe enough that you can’t continue working, you will need an income regular living expenses

Disability & dread disease insurance coverage protects the insured for a specific and severe health problem over a defined period. It differs from other forms of health insurance. In this policy, there is limited coverage to the specifically named risk. An individual can buy the coverage as a stand-alone policy or as a rider to life insurance.

Disability & dread disease insurance may be limited to certain conditions that require long-term hospitalization or advanced treatment techniques. In most cases, disability & dread disease insurance can supplement a beneficiary’s present health and disability coverage plans. Some life insurance policies offer additional benefits for critical illnesses known as dread disease riders. 

Why The Need?

Firstly, disability and dread disease cover provides for the replacement of your income. Secondly, it can cover additional expected medical costs that arise becoming disabled or contracting a dread disease or critical illness. It differs from death cover, in that it aims to providing benefits to maintain your living during your lifetime.

There are two way to structure disability benefits. Part of the payout could be used for lump sum payments to settle liabilities. The balance can be invested to provide an income or can be purchased as a monthly income disability benefit. This would provide a regular monthly income in the event of disablement.

Loan Protection Insurance

Loan protection insurance is a specific type of personal risk cover. This type if policy usually provides a benefit amount that declines over time. With the death or disability of the insured, it will pay the (declining) outstanding balance on the loan. It is usually used as cover for purchase of large assets. Such assets could include your home, investment properties, vehicles, business loans / finance and so forth.

Policy Cessions

Many of our policies can be ceded to a bank or another lender as security against a loan (if required). Lenders may sometimes require life insurance to secure a home or business loan. The policy is used to guarantee that these assets will not be repossessed in the event of your death. This ensures that the loan will be settled, if you die (or perhaps are permanently disabled). It ensures that your family will retain ownership of the house (or business) asset that you had bought.

Medical Aid

Medical aid provides personal risk insurance for medical expenses for members who pay a monthly contribution for this cover. Members (individually or via their employer) pay contributions (premiums) to medical aid schemes. In most cases, employers contribute a percentage towards the employees’ premiums.

Medical aid covers members’ healthcare costs such as hospitalisation, treatments and medicine. The scheme pays members’ medical costs, according to the rules of the medical scheme and the member’s plan type. These rules ensure that medical service providers are paid on time, and members are fairly cared for.

All medical schemes have to comply with national legislation. In addition, South Africa, schemes are governed in accordance with the Medical Schemes Act 131 of 1998. Furthermore, the Council of Medical Schemes regulates all medical aid schemes.

Assessing Your Personal Risk Insurance Needs

Before purchasing a personal risk insurance policy, consider your financial situation. Be aware of the standard of living you want to maintain for your dependants. When buying cover, there are some basic things you should consider.

• Who will be responsible for funeral costs and final medical bills in the event of your death?
• What will happen to all my debt commitments?
• Will there be adequate funds for finance repayments, education, and other living expenses?

You should ideally re-evaluate your personal risk insurance regularly. This is more so when you experience a major life event. Marriage, divorce, the birth or adoption of a child, or purchase a major asset further neccessitates a reevaluation. Many of us are also often not really sure of our insurance needs. Consequently, the best solution is to discuss this with a trusted advisor or insurance broker. That’s reason enough to get in touch with us. A review is free, and comes with no obligation. After all, a second opinion couldn’t hurt either…