Guiding consumers since 2009

Did Michael have enough life insurance?

By Staff Writer

Reports of disputes around Michael Jackson's children, estate and life insurance have raised a number of insurance-related issues.

The first has to do with exclusion clauses in his life policies that may result in these not paying out due to concerns over the nature of his death. This could leave his dependents with a large amount of debt and without sufficient financial resources for the future.

According to Chris de Klerk, Corporate Actuary at PPS Insurance, while life insurance policies in some countries contain a number of exclusion clauses, this is not the case in South Africa.

"While life policies in some countries have a permanent suicide exclusion clause, in this country, the typical policy will only not pay out if the policyholder commits suicide in the first two years of taking out the policy. This exclusion clause would fall away after the first two years."

No other exclusions are standard on life cover policies in South Africa but it remains important to check the policy wording of your contract to ensure that this is the case.

On the other hand, most disability policies such as permanent income replacement and dreaded disease cover (i.e. in the case of a coma or paraplegia) typically have more standard exclusions and don't pay out if you are injured doing something illegal.

A disability policy would also not pay out if the policyholder was disabled as a result of abusing prescription medication as it would probably fall under the deliberate self harm exclusion. De Klerk says life cover is crucial in order to prevent leaving your dependents in debt.

"You can take out policies for a specific reason, such as covering an outstanding homeloan and cede it to the institution through which you have obtained the loan, so that if you die, the policy covers the outstanding home loan. He adds that some insurers, like PPS, even allow you take out one policy and cede it to several people, divided up by the amount that you owe each one.

Another issue that Michael Jackson's death has raised is the amount of death cover needed. According to de Klerk, most companies follow similar financial underwriting requirements, using income and age as a guide as to how much death cover is appropriate.

"Generally, the younger the policyholder, the more life cover is needed as they are likely to have younger dependents who will require financial assistance for a longer period of time. In addition, current income also needs to be taken into account in order for dependents to continue with the same standard of living. She says a rule of thumb for a 35 year old would be to multiply annual salary by a factor of about 25. So for example, a person of this age with an annual income of R500 000 would require life cover of R12.5 million. For a 55 year old, the multiplier could be about 15, meaning that the policyholder would require life cover of roughly R7.5 million.

Another brewing controversy over Jackson's death is around the nomination of beneficiaries. De Klerk says that individual life cover policies generally pay out quickly if a beneficiary is nominated. "However, if no beneficiary has been nominated, the funds get paid to the estate and it can take years before the beneficiaries receive anything. It is also important to make sure your nominated beneficiary form is up to date as the life company will pay to the beneficiaries you have nominated on this form."

This is unlike death cover in a pension fund, which require the Trustees of the fund to investigate who the death cover should be paid to, regardless of who is nominated by the member.

Recent Articles

Featured Personal loan or business loan? The best way to finance your business

When starting your own business, you may have to rely on external funding. Perhaps you qualify for a personal loan, but would it be better to take out a business loan instead? We got in touch with a specialist to find out whether it’s best to take out a business loan or a personal loan to assist you with your ongoing business or start-up.

What to do when you’ve been denied a home loan

After months of scanning property sites and attending showhouse after showhouse, you’ve finally found what you’ve been looking for. But your dream of owning a home comes crumbling down when you receive the news that you’ve been denied a home loan. So, what now?

Can your retirement annuity be used as collateral for a loan?

If you have a retirement annuity, you may have wondered whether you can use this as collateral when you take out a loan. We decided to do the leg work and find out whether this is possible or not.

Best travel cards offered by top South African banks

Planning a trip abroad involves a lot of administration. You need to consider travelling arrangements, reasonable accommodation, and a daily itinerary. But have you considered how you’re going to pay your bills once you arrive? Besides considering bank costs, you also need to consider exchange rates.

Deals

Takealot January Big Sale

Price: Available on request
When: Until 31 January 2020
Where: Online

Annique Restore Package Special

Price: From R600
When: Until 31 January 2020
Where: Centurion

Ster-Kinekor Senior Citizens Discount

Price: Available on request
When: Daily
Where: Nationwide