Future cover benefits give the policyholder the option to purchase additional cover with no, or limited, medical underwriting. A negative HIV-test result is generally required.
The policyholder may choose to purchase a new policy, or to increase an existing benefit, with the additional cover.
Some of the advantages of future cover benefits are:
Protection of cover in real terms due to inflation.
Protection against not being able to obtain new cover in future due to becoming uninsurable.
In respect of business assurance, allowing the cover on your life, or the life of a key person or partner, to grow alongside the business.
Different benefit variations are offered, giving the policyholder the option to purchase additional:
- Life cover (death benefits).
- Disability cover.
- Any combination of disability or impairment cover.
- Any combination of life, disability or impairment cover.
- Any combination of life, disability, impairment or dread disease cover.
- The insurance company may also make available other benefit(s) when an option is exercised.
- Future cover benefits may, however, cease when you claim against any of these benefits.
- Events at which options may be exercised
- The events at which these options may be exercised are generally a combination of:
- Fixed future dates, like every policy anniversary or every third policy anniversary.
- Several life events like marriage, birth or adoption of a child, permanent separation, purchasing a home or taking out / increasing a mortgage bond.
- Education cost.
- Child born with mental retardation, spina bifida or cerebral palsy.
- Increase in personal liability as a result of business activities.
Following the purchasing of additional cover after a life event, the policyholder may, or may not, forfeit the right to purchase additional cover at the next policy anniversary. A validity period of, say, 60 days may be applicable. In this case, the application for additional cover must be made within 60 days of the date on which the option event occurred.
Cover amount and working of benefit
Future cover benefits, at each option event, are expressed in several different ways:
A fixed percentage of the future cover benefit amount that can be applied for at each option event.
Allowing the policyholder to select, within certain limits, an option rate.
Spreading, according to a fixed formula, the total future cover benefit amount over future policy anniversaries.
Future cover benefits must generally be exercised regularly throughout the policy term.
Mechanisms to achieve this include the following:
– The entire benefit may expire if more than 36 months have lapsed since last exercising the option.
– If the policyholder does not take up the full option amount in any policy year, the balance may not carried forward to the next policy year.
If the policyholder does not take up the full option amount in any policy year, only 50% of the unused option amount is carried forward to the next policy year.
If the policyholder has not exercised any options in any 3-year period, all future option amounts and amount carried over from previous years is decreased by 50%.
Future cover benefits may not be available to lives subjected to any medical loading, temporary or permanent, at inception stage.
Some companies may make available future cover benefits to these lives, but state that the same medical loadings or exclusions will apply when additional cover is purchased.
The purchasing of additional cover is generally subject to:
A negative HIV test result.
A nicotine test for non-smokers.
Normal financial underwriting.
Normal occupational underwriting (the life insured’s occupation, income, and education at the time of exercising the option is used).
Normal underwriting for dangerous pastimes.
PREMIUM WAIVER BENEFITS
The purpose of this benefit is to continue paying the regular premiums due by a policyholder on an underlying policy in the event of a specified insured event. The insured event is typically death, disability, functional impairment or diagnosis of a dread disease of the premium waiver insured life.
Payment of benefit
The premium waiver benefit is an income stream equal to the premium due on an underlying policy.
The underlying policy can be a risk-benefit (e.g. death, occupational disability, functional impairment, dread disease), a combination of risk benefits, medical scheme contributions or a savings product.
The beneficiary of a premium waiver policy is the insured life or lives on the underlying policy.
For a premium waiver benefit on death, the premium waiver insured life must be different from the insured life on the underlying policy.
For premium waiver cover on disability, impairment and dread disease, some insurers require that the insured life on the underlying policy be the premium waiver insured life. Other insurers allow cover for spouses that are joint-insured lives on the underlying policy.
For medical scheme premium waivers, the beneficiaries would be the main member (if the insured event is anything other than death) and his/her dependants registered on the medical scheme.
It is common practice for an insurance company not to offer premium waiver policies for underlying policies issued by other insurers.
Sum insured increases
The sum insured on the premium waiver policy is usually dependent on the premium of the underlying policy and thus tends to escalate at a similar rate to the premium on the underlying policy.
When a premium waiver benefit becomes payable, the initial benefit payment is usually equal to the premium due on the underlying policy at the time of the waiver claim. In addition to this, most insurers offer a choice in the escalation rate that will apply to the premium waiver benefit. This is often subject to a maximum annual rate, which usually ranges from CPI to 20%.
For the premium waiver benefit on death, the benefit term is usually linked to the premium payment term of the underlying policy.
For the premium waiver benefit on disability, impairment and dread disease, the benefit term usually ends when the premium waiver insured life reaches a predetermined age (typically age 65).
If the premium waiver benefit covers medical scheme contributions, the policyholder will usually have an option to select the benefit term (e.g. 24 months, five years).
The premium waiver policy will terminate if one of the following occurs:
The end of the benefit term is reached.
The term of the underlying policy has expired.
A claim is admitted under any other premium waiver benefit attached to the underlying policy.
Cancellation of either the premium waiver policy or the underlying policy.
Death of the insured life of the underlying policy.
The premium waiver insured life recovers from the disability (applicable where the premium waiver benefit is paid on disability).
The premium due for this benefit is payable until the earlier of:
The end of the benefit term of the premium waiver policy.
The end of the benefit term of the underlying policy.
The acceptance of a claim under the premium waiver policy.
Cancellation of either the premium waiver policy or the underlying policy.
Death of the insured life on the underlying policy.
The premium for this benefit is usually dependent on the premium of the underlying policy and thus tends to escalate at a similar rate to the premium increases on the underlying policy.
Premium guarantee term
The premium guarantee term for this benefit is often dependant on the premium guarantee term for the underlying policy.
For a premium waiver benefit on disability, there may be a deferred period, usually varying from three to six months. This is to ensure that the disablement is a permanent condition.
For a premium waiver benefit on impairment, there may be a survival period, often 14 days, before the premium waiver benefit becomes payable.
Standard insurance exclusions (e.g. suicide, criminal acts, riot) found on risk benefits are applied to premium waiver policies.
As the waiver policy is generally a rider benefit, the premium payer will be underwritten for acceptance, depending on the sum insured. If the underlying policy is a risk product, the insured life would have been underwritten for acceptance. Typical underwriting and age limits are enforced.
For medical scheme premium waivers, proof of medical scheme membership is required. There may also be a requirement of the premium payer to be a member of a medical scheme.
The processing of a claim on a premium waiver policy follows the protocols for a death, disability, impairment or dread disease claim.