Life Insurance: 3 SNEAKY Words to Be Careful of

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Imagine getting a brand spanking new car. You personalize it to your contentment and wait for the dealership to call you and tell you that your dream car has arrived and is ready for collection. You hail an Uber and get to the dealer to collect your new baby, complete the final paperwork, secure some insurance and you are ready to paint the town red.

Not even a week later some teenager rear-ends you at the traffic light and your custom paint is ruined, and you can’t drive the car and risk making any latent damage worse. You call your insurer and the lady at the call center politely informs you that the cover you have on your car only pays out if you were to get your car written off. If your car is repairable, you are on your own.

If you have read some of my posts on insurance, you will know that my take on insurance is that you should maximize the number of claim events that you can claim against by getting comprehensive cover.

I’d hate to pay for insurance over many years only to have something happen to me that falls just shy of what the insurance that I have covers against.

If you share these sentiments, then this blog post is for you.

Let’s Talk About Life Insurance

This is probably the least complicated kind of insurance. For the most part, you only need to make sure that you don’t get Accidental Death Cover, life insurance that pretty much is only life cover on condition that your death will be caused by an accident.

The jury is out on how the “Accident” scenario is defined, but either way, I am not interested.

This is probably a good bet if you are a prophet of sorts, but I would advise the rest of us to get life insurance: insurance that will pay out an agreed upon amount in the event that your heart stops beating, whatever the reason.

What about Disability Insurance?

Here’s where it starts to get a little thornier. The word “Disability” in the insurance industry is defined relative to your occupation.

Right off the bat, this means that you cannot really get disability insurance if you are not employed.

Upon submitting a claim the insurer will only ask one question: After whatever has happened to you will you still be able to be employable for a reasonable occupation? If the answer to this question is yes, you do not have a valid claim.

Own Occupation Disability will insure you against events that will render you disabled for your own occupation as opposed to a generally defined reasonable occupation.

Say, for instance, you are a neurosurgeon and suffer a stroke. If your patients are anything like me, they will still respect your medical opinion but would probably not want you anywhere near their brain. In this case, a stroke would invoke a valid disability claim and the insurer would honor your claim, instead of suggesting that you venture into lecturing as a new career.

Impairment uses altogether different language to assess a claim. Instead of asking, “Can you do the job you could do before?”, it instead poses the question, “Can you live your life the way you did before?”

The insurer may assess how your condition or injury affects how you perform basic tasks that formed a part of your daily life like driving, cooking, having a shower or bath and getting dressed and pay out a benefit based on the extent to which your ability to perform such tasks is diminished.

What Then of Dreaded Disease?

You need to educate yourself around what insurers mean when they talk about dreaded disease cover, severe/critical illness cover and terminal illness cover. I give them in that order because the former-most is the least severe while the latter most the most severe.

These kinds of cover may all have their relevance for different situations, but you need to make sure that the protection you’re looking to get is commensurate with the kind of insurance that you take out.

Some insurers may use these terms interchangeably while others may use these terms to validate a claim only at a more progressive stage or to narrow the list of diseases that they cover.

Dreaded Disease Cover is generally the most comprehensive cover in this space as its definitions tend to cover a wider spectrum and some claims may be validated even upon diagnosis.

What are Accelerated Benefits?

What consumers do not always realize when they are sold packaged insurance is that the benefits that comprise their insurance package may not always be stand-alone benefits.

For individuals that have an estate plan and are looking to leave a legacy it may not always be a good idea to get a package with accelerated benefits (benefits that cancel out other benefits if the insurer were to honor a claim against an insured event).

In my experience, this kind of setup would only be a good idea if you were to have a mortgage or some other kind of debt and were to cede this policy to your lender to give them the assurance that your debt would be settled in the event of your death, impairment or upon diagnosis of a dreaded disease.

In every other case it would not be wise to purchase accelerated benefits as each benefit amount would have been calculated based upon a financial need, liability and/or desired legacy creation you would have been looking to secure based on your estate planning.

Conclusion

Read the words. Compare what insurers mean when they talk about different claim events.

My take on insurance is to get the most comprehensive cover. Because insurers tend to incentivize packaging by offering bundling discounts, the price penalty, in my opinion, is not really worth discussing.

Instead of getting accidental death insurance, get widely defined life insurance.

Instead of getting disability insurance, get insurance that will cover your particular occupation and also cover you for impairment.

Instead of getting terminal illness cover, get dreaded disease cover.

Whatever you do, before you rush off to the markets to invest and grow your balance sheet, get covered.

Be sure to also check out:

Life Insurance: Is Insurance a Waste of Money?

Life Insurance: Is the Price of Your Premium All You Should Worry About?