Your risk cover and Covid-19

By  Gareth Collier – Crue Invest (Pty) Ltd

A look at insurance in the context of the coronavirus.

With the spread of the coronavirus through our country, many South Africans have dusted off their insurance policies to check what cover they have in place, and this, in turn, has given rise to multiple questions regarding Covid-19 claims. Will insurers pay out for death claims as a result of Covid-19? Let’s have a look at insurance in the context of the coronavirus.

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Life cover

Life cover is a way of protecting your loved ones financially if you were to die and is a great way of ensuring liquidity in your estate. Determining the correct level of life cover is dependent on factors such as how much debt you have in place, how much your spouse and children would need to cover their monthly living expenses, what provision you want to make for their education, and so on. If you have an existing life cover policy in place, you will be covered in the event of death as a result of the coronavirus, and the death claim would follow the normal administrative process.

That said, now is a good time to check the beneficiary nomination on your policy as this can affect how, when and to whom the claim is paid out. If you have nominated your estate as the beneficiary on your policy, the proceeds of the claim will form part of your deceased estate and will be subject to the winding-up process – which could take anywhere between six months and two years to complete. This could leave your loved ones in a financially precarious position following your death.

On the other hand, if you specifically name a beneficiary or beneficiaries in your policy, the proceeds of the claim will be paid directly to them within around 48 hours of your passing. Bear in mind that, for estate duty calculation purposes, the value of the policy will be considered ‘deemed property’ in your deceased estate. Further policies payable into your estate are also subject to executor’s fees and one way to avoid this is to ensure that there is a named beneficiary (or beneficiaries) to the policy. When nominating beneficiaries, be sure to identify them in clear terms. Any references to ‘my partner’, ‘my children’ or ‘my family’ are vague and can lead to confusion regarding your intentions. Ideally, use the full names and ID numbers of your nominated beneficiaries.

Many large insurance companies have announced premium relief options for clients who are struggling to keep up with their premiums. These relief measures include several qualifying criteria for clients and making use of these relief mechanisms can adversely affect you from a risk perspective, so be sure to seek independent advice before reducing your cover and/or premiums.

Capital disability

Capital disability cover is insurance that provides you with a lump-sum payout if you become permanently disabled. This payout can be used to cover the costs associated with your disability such as a wheelchair, medical equipment, remodelling of your home or vehicle, or settling your home loan or other debt. When determining exactly what your capital disability cover will pay out, it is important to first understand the difference between (a) traditional disability assurance and (b) functional impairment assurance.

Traditional disability insurance

If you have traditional disability assurance in place, your claim will be dependent on whether or not you are physically able to work, although this area of insurance is particularly complex. In general, occupational disability assurance is divided into three options:

• Own occupation: If you have ‘own occupation’ insurance, you will have a valid claim if you can no longer perform the nominated profession or job title on the policy. This cover is generally suitable for professionals.
• Own or similar or reasonable occupation: If you have an ‘own or similar occupation’ policy, your claim will be valid if you can no longer perform your current or similar job that you could reasonably be expected to do.
• Any occupation: If your cover is for ‘any occupation’, the insurer will only pay your claims if you are unable to perform any job whatsoever. If you are disabled but can still perform some other job, albeit a menial one, you may not qualify for a claim.

Functional impairment insurance

If your policy provides ‘functional impairment’ cover, bear in mind that claims are not dependent on whether or not you can continue performing your job. Rather, the policy pays out a lump-sum benefit on the occurrence of a pre-defined event should you be unable to carry out certain physical functions. Criteria for the payment of benefits are based on the level of illness or impairment, defined in medical terms. Functional impairment benefits are tiered and take into account the importance of the body part you can no longer use, bearing in mind that the impairment must be permanent. To measure functional impairment, consideration is given to your ability to perform daily activities. Generally, a functional impairment policy will pay a percentage of the amount for which you are insured, depending on the severity. Impairment products are list-based products which means that if your particular impairment is not on the pre-determined list, you will not qualify for a claim. 

Income protection benefit

An income protection benefit is designed to replace your income or a portion of your income, should you become ill or disabled and unable to generate an income. It is important to note that income protection benefits do not provide cover for loss of income as a result of retrenchment. When taking out your policy, you will have nominated the level of income you want to protect and the age at which the benefit ceases. In general, most income protection policies terminate at age 65. Most importantly, it is important to ensure that your income protection benefit is designed to keep pace with annual inflation.

When reviewing your policy, make a point of checking whether any exclusions were applied. Very often insurers will apply exclusions where you have a pre-existing medical condition, such as a back problem or depression. As Covid-19 can result in a lengthy period of illness, check whether your policy includes a temporary disability benefit. A temporary disability is an injury or illness which leaves you unable to perform your nominated occupation for a certain period whereafter you are reasonably expected to return to work – such as would be the case if you suffered severe Covid-19 symptoms. Importantly, check whether any waiting periods apply to your policy. Many income protection benefits provide a three-month waiting period which means you can only start claiming once you have been ill or disabled for three months.

Severe illness cover

Severe illness cover, sometimes also referred to as dread disease insurance or critical illness cover is lump sum insurance cover that pays out on the diagnosis of a serious illness such as cancer or heart disease. Severe illness cover changes from insurer to insurer, so it is essential to read the small print to determine (a) exactly which illnesses are covered by your policy and (b) how severe they need to be for it to pay out. Almost all policies cover cancer, stroke and heart disease, but will currently not cover Covid-19 as it is an infectious disease that does not fall within the definition of a dread disease. When checking your policy, be sure to check if your insurer applied any exclusions in respect of pre-existing conditions you may have had at the time of applying.