When life insurance was first developed, companies only covered one event, namely the death of the policyholder. However, as the industry evolved life insurance companies started adding other benefits to the range of products on offer. Termed accelerator rider benefits, these benefits were designed to accelerate (reduce) the death benefit or any other benefit it was linked to. Examples include critical illness and lump sum disability benefits. If, for example, you were insured for a death benefit of R500 000 and a rider benefit of R400 000, a claim under the rider benefit would reduce the value of the death benefit to R100 000 (R500 000 less R400 000). The same would apply where, say, dread disease and a disability benefit were linked to each other. A growing consumer demand for benefits available independently of life cover led to the introduction of stand-alone rider benefits. A stand-alone benefit can be sold in conjunction with a death benefit but it can also be sold separately. Stand-alone benefits will always be more expensive than accelerator rider benefits since the life insurance company is likely to pay out more if the policyholder claims. Using the previous example, if the rider benefit had been stand-alone cover, you could claim for R400 000 under the rider benefit and retain the R500 000 life cover. This means the life insurance company may end up paying claims worth R900 000, instead of the maximum R500 000.

Reinstatement of cover can be complex and practices vary from company to company. It is therefore important that you consult the relevant product guide when choosing a product. The reinstatement option generally only applies to policies offering dread disease benefits.

• Life cover

  Where a reinstatement option was purchased with an accelerator policy, the life cover will to revert back to the level enjoyed before a claim was made against the dread disease or disability rider benefit. However, this reinstatement option usually only kicks in after the insured has survived for a period of time (typically 6 months) from when the claim was made, or in the case of dread disease cover, since the condition or disease was diagnosed.

• Dread disease cover

  Generally, once the policyholder has claimed the full benefit under a specific dread disease condition the benefit falls away and no further benefit is available for payment. However, some products allow you to reinstate cover under a dread disease policy. Generally this would then allow the policyholder to claim for other conditions or groups of conditions not claimed for previously. Generally further claims under the same condition (or group of conditions) would be excluded. For example if you had claimed for a heart attack, you would not be allowed to claim again for heart related conditions, but would be allowed to claim for a later diagnosis of cancer. Dread disease products which offer different benefit payments based on different severity levels of the condition have been ignored in the example above. These products may, however, also have a reinstatement option. Where this is the case further payments would be allowed under the original condition (given that the condition worsened). The exact workings of reinstatement under these products are more complex and practices vary between companies. It is therefore important that you consult the relevant product guide.

A waiting period is the period during which a policyholder is not allowed to claim even though the policy has commenced. The main reason for imposing a waiting period is to prevent policyholders from anti-selecting against the insurance company. Waiting periods differ for different benefits. On a dread disease benefit, for example, the waiting period may only apply to certain diseases.
Due to the fact that waiting periods reduce anti-selection, they will also reduce the insurance premium. It is important to note that companies impose waiting periods for different diseases and conditions. It is therefore important to familiarise yourself with the waiting period applicable to the product you are considering.

Some products impose a survival period, which is the length of time that a policyholder must survive from the time that they claim for a benefit before the claim will be paid by the insurance company.
The survival period aims to ensure that these insurance products financially assist policyholders who are still alive with any needs they may have as a result of their change in lifestyle brought on by a dread disease and⁄or disability. It is not the intention of these products to pay a benefit on death and this is what the survival period prevents.
A typical survival period is in the range of 14 to 28 days. The definition in the policy document would usually state that the policyholder has to survive for this period "without the use of a life support system".
The use of the survival period ensures that only valid claims are paid and therefore helps reduce premiums on dread disease and disability cover.

The term elimination period refers to the period of time between the date that an illness or disability commences and the beginning of the benefit payment. The elimination period is often used to prevent short term disability or illness claims. An elimination period will therefore reduce the insurance premium.
Elimination periods are common for dread disease and disability benefits. Common elimination periods are between 14 and 28 days for dread disease products, and one month, two months and six months for lump sum disability products.

For the purpose of this section, examples are based on death benefits, but principals remain exactly the same for other benefits such as disability, impairment and critical illness.

What is rating?

Insurance companies base premiums on the risks they accept. The higher the risk, the higher the premium charged. It is therefore important that the risks of insuring someone's life are correctly rated.
While rating is an internationally accepted practice, the specific rating criteria and application of the criteria differ from country to country.

Rating factors and premiums

There are essentially two different approaches to rating: a discrete approach and a continuous approach.

• Discrete approach

  The majority of life companies currently use the traditional discrete approach to rating. Based on an individual's rating factors (income, gender and education) he or she is placed in a discrete rate group. Everybody within that rate group then pays the same premium. Typically there are eight rate groups for men and eight rate groups for women (four for smokers and four for non-smokers).

• Continuous approach

  The continuous approach is a relatively new approach to rating. There are no discrete rate groups. Effectively each client is charged a unique premium based on his or her rating factors.

What are rating factors?

The risk of dying is affected by a number of risk factors. Generally, an older individual has a greater chance of dying than a younger individual (all other things being equal). Therefore, age is a risk factor. Other risk factors include gender, access to healthcare, nutrition, other lifestyle factors, and so on. In some cases these risk factors are easily determined, for example age and gender. However, other risk factors are not so easy to determine, like access to healthcare and nutrition. In the event that the risk factors are not easy to determine, proxies are found for these risk factors. For example, income is generally a good proxy for access to healthcare and proper nutrition.
The combination of the risk factors that can be determined (such as age and gender) and proxies for the other risk factors (such as income) are known as rating factors.
Rating factors are therefore the factors that determine the risk group into which an individual is placed.. By applying the rating factors insured lives are divided into groups where the risk of dying is similar. This enables the insurer to charge a fair premium for each life for the risk being accepted.

What rating factors are typically used?

In this section, the most common rating factors are discussed shortly. It is important to note that different rating factors may be used for different benefits. For example, occupation is typically used when rating occupational disability benefits but is less important for death benefits.

• Age

  Generally the older an individual, the higher the risk of the individual dying in a given year. Older people therefore generally pay higher premiums.

• Gender

  Generally, women tend to live longer than men. This means that the risk of a woman dying is less than the risk of a man dying in any given year (and hence women generally pay lower premiums).

• Income

  Income plays an important role in determining an individual's standard of living. Generally a higher income means better access to healthcare, a healthier lifestyle, resources to overcome difficulties, and so on.
  This means that people with higher incomes tend to represent a lower risk and are thus charged lower premiums.

• Education

  Better-educated people tend to live longer than less educated people. This is because individuals with a high level of education often exhibit greater awareness of health issues leading to healthier lifestyles, better nutrition, and so on.
  Education and income are often correlated in that people with better educations may earn higher incomes. However, education is also an important factor in its own right since it may also be a predictor of future earning potential.

• Smoking

  Generally people who smoke tend to die sooner than people who do not smoke and therefore they pay higher premiums.

• Occupation

  Once again occupation is quite closely correlated to both income and education.
  However, occupation is also an important rating factor in its own right. For example, the nature of the work may increase the associated risk. For example underground mining and police work are inherently dangerous.

• Health status

  An individual's state of health is also an important rating factor. Again, the impact of this factor depends on the benefit applied for. For example, consider an individual with a history of back problems. He or she may be charged an extra premium for occupational disability cover since the back problem increases the chance of a disability claim later on. However, the back problem may not increase the individual's chance of dying and therefore not impact on the death benefit premium.

• Company responsibility

  Insurers need to ensure that any rating factors that are applied can be justified statistically. For example, if income is used to determine premiums, the impact of income on the associated risks needs to be justifiable statistically. This is referred to as fair discrimination.
  In addition fair discrimination should not infringe on an individual's human rights. For example, even if it were statistically justifiable, race would not be used as a rating factor.
  Therefore, the effects of various rating factors on the risks being assessed are based on statistical evidence. Wherever possible, South African statistics are used to show the impact of rating factors on premiums charged. If South African data does not exist, overseas data may also be used.

Individual rating versus community rating

This document relates to individual life policies where individual rating is applied. This means that an individual's premium is dependent on the rating factors mentioned above such as age, gender and state of health and each individual is charged a premium corresponding to the risk that he or she represents.
In a community rating model, the premium is often independent of some or all of the rating factors and an average rate is applied. This approach is typically used in group life insurance and funeral insurance and men, women, smokers and non-smokers all pay the same premiums.
The advantage of using an individual approach to rating is that clients are charged a fair premium for the risk they represent. For example, healthy lives are not subsidising less healthy lives.

Premium patterns

This section describes the different premium patterns available on new-generation risk products. These are also sometimes called funding patterns or increase options.
The options described apply to level cover. There are also a number of different ways to structure cover growth on a policy, which are discussed in the next section.

Level premium pattern

The policy owner can choose to pay a level premium for a level amount of cover over the term of the risk benefit. A change in premium may occur at the end of the guaranteed term. There may be a guarantee that premiums will not increase during a certain period. At the end of the guarantee period the premium may increase as a result of a review of general risk rates. These increases are not impacted on by your age or medical status and you do not need to undergo new medical examinations and blood tests.
With a level premium pattern, the insurance company effectively takes the mortality or morbidity curve over the future lifetime of the insured, and flattens it out. The policy owner therefore pays a premium that is initially more than the true underlying risk, but less later on, as indicated in the graph below.
The advantage of the level premium pattern is that it provides stability to the policy owner. Premiums will remain the same over the long term.

Compulsory premium increases and its implications

Compulsory premium increase options all offer initial premiums lower than the level premium pattern, but these premiums are contractually required to increase in a pre-determined way to maintain the chosen level amount of cover. The steeper the premium pattern, the cheaper the initial premium will be. This principle is illustrated in the table below, which indicates the possible initial premium payable under different compulsory premium increase options, compared to a level premium of 100.

(Initial premiums shown are purely illustrative.)
These options therefore do get more expensive over time. Clients should also realise that premium increases due to reviews after the guaranteed term, or due to additional cover, are required on top of scheduled compulsory increases.
Contractual premium increases may not be skipped, reduced, or cancelled. Should the client no longer be able to afford the compulsory increases, he or she should contact the insurance company to make alternative arrangements. This will mean a reduction in the cover amount.

Compulsory increase patterns

These options are once again described in terms of a level amount of cover.

• Fixed

  These compulsory increase patterns use a flat increase percentage to mimic the risk curve. The premium is contractually required to increase annually at a fixed rate, for example 5%, whereas the underlying [risk curve] typically increases by a lower percentage at younger ages, and a higher percentage at older ages.

  A minimum entry age is usually attached to these increase patterns. This ensures that the new business premium rate increases by at least the compulsory increase percentage from year to year, so that the client is not better off lapsing the policy each year and taking out a new one, instead of taking up the compulsory premium increase.

  Fixed compulsory increase percentages now range between 3% and 10% per year. The higher the compulsory increase percentage, the lower the initial premium will be.

• Age-rated

  The age-rated premium pattern also offers a cheaper initial premium, which will become more expensive over time. In this case, the annual increases follow the shape of the risk curve more closely, which means increases that are lower at the younger ages, and higher at the older ages.
  The renewal rate at each age typically corresponds to the new business rate at that age.

• Variable age-related

  These patterns also approximate the underlying [risk curve], in that they require lower compulsory increases at younger ages, and higher increases at older ages.
  But it differs from the age-rated pattern in that the compulsory annual increases required at each age are fixed upfront, for the duration of the policy. These premium patterns typically mimic the underlying risk curve less accurately than the age-rated premium pattern, as required growth rates increase in a more structured manner from year to year, as indicated in the table below.

  Required increases
  Age-rated	Variable age-related
  0.00%	3.50%
  0.00%	3.60%
  2.48%	3.70%
  3.64%	3.80%
  4.09%	3.90%
  3.37%	4.00%
  3.26%	4.10%
  3.68%	4.20%
  3.55%	4.30%
  6.37%	4.40%
  6.45%	4.50%
  6.06%	4.60%
  6.94%	4.70%
  7.25%	4.80%
  7.83%	4.90%

Stepped premium patterns

• According to age

  This premium pattern is also sometimes called renewable cover. The policy provides cover for as long as a benefit allows, but it is initially priced for a fixed period of 10 or 15 years only. (Refer to the explanation of how risk products are priced, in the section on Product Types.) At the end of this term, the benefit is extended for a further term, and the premium is automatically re-calculated for the next period, or until the benefit cease age is reached. No underwriting or intervention by the policy owner is required, i.e. the insurability of the life insured is guaranteed for the full duration of the contract. The increase in premium is determined by the life insured's age at the time of the increase.

• Fixed steps

  Some premium patterns also require a fixed step-up in premium after an initial period, e.g. 20% increase every 10 years.

• Combinations of annual compulsory increases and steps

  Some policies require a combination of annual compulsory increases (fixed or age-related), as well as compulsory step-ups in premium at pre-determined durations. These are the most aggressive options available. They offer very cheap initial premium rates, but may become very expensive in the long run.

Cover Growth

The premium patterns are all explained in terms of a level amount of cover. The following options may be selected to add some growth on cover to the policy. They can be chosen at the outset, and can typically be removed at a later stage if no longer required.

Fixed or pre-determined combinations

These options offer a fixed annual cover increase, for a fixed annual premium increase. For example, a 10% increase in premium each year will secure a 7% cover increase. Other options that are typically available are a 5% premium growth rate, with a 3.5% cover growth rate, or cover that grows at CPI, with premiums growing at CPI+3%.
The premium is required to increase at a percentage that is higher than the increase in cover amount, to approximate the increasing cost of each year's additional cover as the life insured grows older.
When this option is used together with compulsory premium growth, a higher compulsory premium growth rate is required to secure cover growth, e.g. a 10% compulsory premium growth rate, for a 3.5% cover growth per year.

Scheduled annual cover increases

With these options, only the annual cover increases are fixed initially. Each year, the premium increase required will be determined based on the cost of the extra cover at that time, taking into account the age of the life insured at that time. This means that the additional cover becomes more expensive as the life grows older.
This allows a variety of cover increase options to be made available, ranging from fixed options, or CPI, to, for example, increases in exchange rates.
When this option is used with compulsory premium growth, the cost of the extra cover is required in addition to the compulsory premium growth rate.

Scheduled additional premium increases

With these options, only the additional annual premium increases are specified upfront. Each year, the increase in cover that can be purchased with the premium increase is determined at that time, based on the age of the life insured. Because additional cover becomes more expensive as the life insured grows older, the cover growth that is added each year reduces from year to year.

Summary

Scheduled annual cover increases provide certainty of cover, but the required level of future premiums is uncertain.
Scheduled additional premium increases, on the other hand, provide certainty of premiums, but the actual level of future cover is uncertain. The advantage of this method is also that more cover is added early on in the contract term while the life insured is younger.
Fixed or pre-determined combinations of premium and cover growth provide certainty of both future premium and cover levels, but with cross-subsidies of the actual cost of additional cover over time.
On the whole, all these options provide on average similar levels of additional cover over time.

[The risk curve]

The underlying mortality or morbidity curve, reflecting the probability of the claim event happening at each age. This probability typically increases from year to year as the life insured grows older.

In general a claim is a defined event and as such all terms and conditions are defined in the policy, whether it is for individual or group business.
Claims assessment strategy involves two processes, the investigation into the validity of the original proposal form and the assessment of the life office's liability under the contract.
The principles outlined in this document apply to individual business.

Objective of claims management

The overall objective of claims management is to manage risk. Risk management philosophies will vary from insurer to insurer as the product design and overall pricing will determine the risk the company is willing to accept.
While it is the business of insurers to pay valid claims, the life industry also needs to protect itself against anti-selection and/or fraud from policyholders and beneficiaries or other parties.
Communication between insurer and client should be transparent, which means clear and precise reasons should be communicated to the client . especially when a claim is repudiated. With open and transparent communication many misunderstandings can be avoided and/or misperceptions cleared this way.

Major influences on claims practice

Apart from aspects specific to each claim and policy conditions, claims practices are also influenced by:
Insurance regulators

• FAIS Ombudsman
• Long-term Insurance Ombudsman
• Pension Fund Adjudicator
• Financial Services Board (FSB)
• Commissioner for Conciliation, Mediation and Arbitration (CCMA).

The courts

With insurance policies, as with any other types of contracts, disputes may arise over interpretation of contract language or a given set of facts. Although every case with a dispute does not reach the courts and/or Ombudsman, those that do may constitute a very important influence on claim decisions in the future by resulting in precedent setting rulings.

The general public through various consumer associations

Although additional business may be generated among existing policyholders, the market for new customers consists of members of the public who are not currently policyholders. The insurer therefore needs to consider the image it presents to the general public.

The policyholders

Premiums from different types of product offerings account for a large portion of an insurer's income, from which policy benefits are paid. Claim practices that are too liberal therefore hold financial implications for an insurer and potentially its policy holders in the form of increased premium rates.

Distribution force

In essence, the claim area delivers the promises that the intermediary has sold to the policyholder. Where a claim is denied, intermediaries are often the ones that bear the brunt of dissatisfaction from claimants. Feedback from intermediaries is therefore vital for identifying claim practices and processes that are more supportive of the distribution force in their interactions with claimants.
All these influences can exist simultaneously. How each company reacts to these influences and/or the weight ascribed to each, results in what the company decides to be prudent to their own claims philosophy. (All companies have the accountability to ensure that intermediaries who market their respective products are adequately trained and accredited to sell their products.)

Standard claim requirements

Prescribing standard requirements for the industry is not practical as products are not always the same even though they may appear to be. In addition, each company follows different claims procedures like whether they are willing to accept an original photocopy or fax version of a particular requirement. The following are basic requirements for different claim events but are not restricted to these:

Death - natural

• Original certified copy of death certificate.
• Original certified copy of ID of deceased.
• Original certified copy of ID of claimant.
• Death claim forms.
• Medical evidence if a policy is in force for less than five years.

Death - unnatural
In addition to the above requirements:

• Police report
• Post mortem report
• Full inquest proceedings plus all statements and other evidence
• Proof of the full verdict in case of murder

Disability type benefits

• Original certified copy of ID
• Proof of income prior to claim (example IRP5)
• Disability claim forms including all supporting substantive medical evidence obtained from treating doctors and/or specialists
• Job description from employer

• Original certified copy of ID
• Dread disease claim forms including all supporting substantive medical evidence obtained from treating doctors and/or specialists and test results, e.g. histology report.

Retrenchment
In the case of retrenchment benefits, proof of employment and retrenchment from employer will be required.

Additional claim requirements

Despite the fact that there are standard claim requirements, each claim will ultimately dictate the requirements to assess the validity of the case. For example, even though standard requirements for a death claim is a death certificate, ID and where necessary a police report, it could be that the member died in a foreign country and therefore additional evidence would be required in terms of identifying the body. Other examples of requirements but not limited to these could be:

• BI 1663: Notification of death (page 1)
• Identification of body at SAPS

General claims workflow:

Claim notification

The life insurance company needs to be notified of a claim by the intermediary, claimant, beneficiary or policyholder. Some companies may have an automated process whereby the notification and registration process form part of the same step and at the same time a letter is sent to the client automatically requesting standard requirements. A timeframe may be specified within which the notification must occur.

Registration

The Insurance Company acknowledges receipt of the notification and where required, sends the client a notice of outstanding requirements.

Assessment

The claims assessor evaluates the claim against relevant definitions and/or policy terms and conditions. The assessor decides on relevant actions to be taken, for example, additional requirements or forensic involvement.
Depending on the policy terms and conditions, in general the claimant and/or beneficiary (if different to life assured) is responsible to provide all claim forms, standard requirements as well as all substantive medical evidence to support the reason for the claim.
The claimant and/or beneficiary is always liable for all medical expenses to support their claim. However, in the event where the insurance company disagrees with the evidence provided they reserve the right to obtain independent medical evidence, in which case the insurance company will be liable for any such expenses.
Where a claimant or beneficiary has provided evidence but it is not in support of the claim the insurance company can make a business decision to pay for any medical expenses where they believe there is a good possibility that the claim could be valid.

Finalisation / validation

Once all information has been collated and all relevant parties have been involved in the assessment process, the assessor decides on the validity of the claim as well as benefit payment to the nominated beneficiary in line with the overall decision.

Life Offices' Association (LOA) Notification

Repudiation of claim

Should the claim be declined a repudiation letter will be sent to the client explaining reasoning behind the decision, for example, declined due to non-disclosure or not meeting the criteria in the event of dread disease claims.

Non-Disclosure / Misrepresentation at Claims Stage

An insurer ordinarily relies on statements made in the policy application. If such statements are false, they may result in the insurer issuing a policy that would otherwise not have been issued. Upon learning the truth, the insurer may have the right to repudiate (void) the policy on the ground that no valid contract ever existed. See [underwriting] for more information.

Onus of proof

The Long-term Insurance Ombudsman refers to the four corners of a claim . contract, identity, event and discharge or claim form. The onus is on the claimant to produce these. The onus to obtain additional evidence to further investigate a particular claim is the insurer's responsibility.
At any stage, where the insurer disagrees with the merits of any claim, onus of proof remains solely with the insurer to validate their disagreement. This can vary from normal investment type policies to disability type benefits. The insurer has to prove why they disagree with what the claimant claims they are entitled to. Sometimes this is easy to prove as it may be a policy condition that is easily defendable. At other times it may be a medical condition that is subjective and warrants special investigation and it may be that medical professionals disagree on the severity of certain conditions.
Where a claim has been declined, the insurer may agree to review after a certain time period, especially when trying to establish permanency of a condition.

Beneficiaries

In the event of the death of the life assured, a beneficiary will be defined as the person(s) entitled to receive either ownership or proceeds of a life cover policy. The beneficiary(s) shall have no rights in or to the policy until written notice of the death of the insured has been received.
Where a beneficiary dies before or at the same time as the policyholder, the benefits of that policy accrue to the policyholder's estate. Where benefits are payable to a nominated beneficiary as a result of the policyholders' death and the beneficiary dies before the payment is made, then payment is made to the beneficiary's estate. Where more than one beneficiary is nominated and only one beneficiary dies before or at the same time as the policyholder, one needs to analyse the contract and the relevant clauses that form part of the beneficiary nomination form. In most cases the relevant portion will be accrued to the deceased beneficiary's estate.
If the beneficiary nomination is in respect of a retirement annuity contract, the benefits will be paid in terms of Section 37C of The Pension Funds Act and/or the rules of the fund and it may be possible that the nominated beneficiary who is not a financial dependent does not receive any proceeds of the policy.
An important factor to consider regarding beneficiary nominations is whether there is any other supporting or contradictory documentation that can influence the validity of the beneficiary nomination. For example but not limited to:

• Letters from an executor stating that there is a dispute that needs to be resolved before payment occurs.
• Claims of fraudulent transactions/beneficiary nominations.
• Divorce agreements/court orders that would contradict the validity of such nominations.

Minors and/or handicapped beneficiaries

Where beneficiaries are minors, payment can be made to the legal guardian of the minor, or into a trust account to be held for and on behalf of the minor or to the Guardian's Fund. To be able to make payment to a trust account there needs to be a trustee and/or curator in place.

Unpaid claims and interest payment

A reasonable period for the payment of the claims depends on the nature of the claim as some claims can be finalised within a week while other more complicated claims can take months.
Currently a maximum period of 60 days applies for death claims and 120 days for disability claims before interest will become payable to beneficiaries.
Interest is therefore calculated for the period from the date all requirements were received to the date the payment was made.

The Ombudsman for Long-Term Insurance

The office for the Ombudsman for Long-term insurance was established in 1985. The function of the office is to mediate in disputes between insurers and policy holders.

Contact details:

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 critical illness 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, critical illness), a combination of risk benefits, medical scheme contributions or a savings product.

Beneficiaries

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 critical illness, 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%.

Benefit Term

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 critical illness, 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).

Premiums Payable

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.

Premium increases

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.

Deferred period

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.

Survival period

For a premium waiver benefit on impairment, there may be a survival period, often 14 days, before the premium waiver benefit becomes payable.

Exclusions

Standard insurance exclusions (e.g. suicide, criminal acts, riot) found on risk benefits are applied to premium waiver policies.

Underwriting process

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 particular medical scheme.

Claims process

The processing of a claim on a premium waiver policy follows the protocols for a death, disability, impairment or critical illness claim.

In many cases, death benefits form the basis of an individual's risk benefits. Death cover was also the first cover offered by insurers to members of the public. Various forms of death cover exist, namely:

• Death benefits (all causes)
• Unnatural death benefits
• Last survivor death benefits
• First-to-die death benefits

Death benefits (all causes)

As the name suggests, this benefit pays out in the event that the insured life dies. All causes of death are covered, be they natural, for example as a result of a heart attack or another illness, or unnatural such as murder or a motor vehicle accident.

Unnatural death benefit

As the name suggests, this benefit pays out on the death of the insured life, provided the cause of death is unnatural (for example motor vehicle accident, murder). This benefit will not pay out if the insured life dies as a result of natural causes such as a heart attack or stroke.

Last survivor death benefit

This benefit (also known as a second-to-die benefit) pays out on the death of the second of two insured lives. This means when the first of the two insured lives dies, no benefit is paid. However, when the second insured life dies, the sum assured is paid.

First-to-die death benefit

The sum assured under this death benefit is paid when the first of two insured lives passes away.

Benefits

The benefits are usually paid as a lump sum. However, in the past, death benefits were offered that paid a monthly benefit amount from the death of the insured life to the end of a chosen term.

Sum insured increases

Sum insured increases may be purchased by means of voluntary premium or cover increases. For example, the policyholder may elect a cover (sum insured) increase of 5%. The sum insured will then increase annually in order to pay for the annual sum insured increase. The increase in premium will usually be higher than the sum insured increase. Similarly, the insured life may choose voluntary premium increases that but additional cover each year.
The policyholder may remove future voluntary premium or cover increases at any time.
Sum insured increases are often used to ensure that the level of cover purchased does not reduce in real terms (as a result of inflation). Whether increases are necessary or not will depend on the reason for the cover being purchased.

Premium increases

There are a number of options available to pay for a level sum insured:

• Level premiums that stay the same for the duration of the cover.
• Compulsory increasing premiums that increase every year without a corresponding increase in the sum insured. This enables the client to pay lower premiums initially, since the premiums due later will be higher than the corresponding level premium. The higher the compulsory increase in premium, the lower the initial premium.
• Other increases later on, which are priced in after, say, 10 years, or benefits that are only priced for 10 or 15 years. At the end of the 10 or 15 years the benefit is then re-priced and the premium increases.

Premium guarantee terms are available for up to 15 years.

Term of the product

Death benefits may be bought for a fixed term (e.g. 20 years) or for whole of life.

Premium guarantee term

For fixed term benefits, the premium is often (not always) guaranteed for the full term. Where the benefit is purchased for whole of life, the premium is usually guaranteed for a fixed, shorter term like 10 or 15 years.

Beneficiary

A one or more beneficiaries may be nominated for the payment of the death benefit.

Exclusions

Exclusions imposed on benefits vary from company to company. However, in general, the only exclusion that applies to death cover (all causes) is the two-year suicide clause.
However, unnatural death benefits often have additional exclusions typically applicable to disability benefits, such as excessive consumption of alcohol exclusions, war and riot exclusions, and so on.

General

A number of funeral benefits are also available in the market. The main differences between funeral benefits and mainstream death benefits offered in the individual life market are:

• Funeral benefits generally require less underwriting.
• As a result the cover is more expensive.
• Lower sums assured are available.
• A number of insured lives may be covered under the same funeral benefit, often including the main member, spouse, children and extended family.
• Waiting periods are often imposed as a result of not underwriting where deaths in the first six, nine or 12 months may not be covered.

Terminal illness benefit

Most (all cause) death benefits in the market include a feature/benefit called a terminal illness benefit. This basically means that if the insured life is terminally ill (expected to die within the next 12 months, generally), the death benefit payment will be accelerated. The amount of this early payment differs from company to company. Some examples include:

• The benefit amount is paid, reduced to allow for interest and premiums.
• 85% of the benefit amount is paid.
• 100% of the benefit amount is paid.

Dread disease products provide benefits in the event that the policyholder suffers a traumatic event or serious illness. The circumstances under which a benefit will be payable are clearly defined in the contract. Dread disease products are provided under a number of different names including, but not limited to, Critical Illness, Trauma Cover, Serious Illness, Severe Illness and sometimes Living Benefits.

Product Details

Dread disease products are intended to provide for immediate expenses and to help ensure access to the best possible medical care and rehabilitation therapy should the insured suffer a serious medical illness. Only a limited number of medical conditions will be covered. In each case, the medical diagnosis must agree with the policy definition before the benefit becomes payable. Insured events usually include traumatic events or serious illnesses that would have a major impact on the quality of life and future life expectancy of the policyholder.

Common diseases/events covered include:

• Heart attack
• Cancer
• Stroke and
• Coma

Dread Disease Definitions

It is important to remember that dread disease products are designed to cover only certain medical events that are considered severe and will have a significant impact on the insured's lifestyle, either in the short or long term. While a claimant may consider any traumatic illness/event as a qualifying for a benefit payment, the actual definition and conditions of the policy must be referred to. Qualifying definitions have traditionally been based on medical diagnosis irrespective of the prospect for recovery. Event criteria were often strict in order to ensure that minor illnesses did not result in enrichment with no real lifestyle compromise to the insured. However, new benefit structures have emerged and policyholders can now choose between Classic, Extended and Tiered benefits.

Classic Benefits

These products provide the full sum assured in the event of a serious medical illness. The medical diagnosis must meet the contractual definition.

Extended and Tiered Benefits

These products aim to cover a greater number of potential medical diagnoses and provide benefits commensurate with the severity of the condition of the diagnosis. Products now include significant numbers of conditions that could result in full or part (tiered) payment. Recovery criteria are often included in the contractual definitions to assess the severity of the condition. These criteria are then used to determine the percentage level of payment. The qualifying criteria and final benefit amount can be significantly different under these products as compared to Classic dread disease products and it is important to understand these differences at outset. A number of different product structures exist and it is important to understand exactly how the benefits will be paid out in the event of a claim. Tiered benefits usually allow for multiple payments should a medical condition worsen over time. Up to the full sum assured would be paid over time as/should the disease progresses. Products may also allow for multiple claims where future events/illnesses are unrelated to previous claims.

[Stand-alone and Accelerator Benefits]

Products are offered on both a stand-alone and accelerator basis.

Term of Policy

Policies may be whole of life or may only extend for a specified duration (such as to age 65).

Survival Periods

Most products include a requirement for the policyholder to survive for a minimum period of time after the medical event (usually 14 or 28 days). This is because the purpose of the dread disease benefit is to provide for medical and lifestyle expenses rather than provide a death benefit for beneficiaries.

Sum insured increases

The sum assured may be level throughout the contract or there may be option for the sum assured to increase by a certain amount each year. This will be defined in the policy document. For dread disease policies specifically, there may be the option to reinstate cover.

Premium Payment

There are a number of different payment options including level premiums throughout the policy or premiums that increase each year. Premiums will usually be guaranteed for a fixed term although this term will usually be shorter than the term of the contract. For example, the term might be the whole of life and premiums will be guaranteed for five or 10 years.

General

Dread disease insurance is not intended to cover loss of income or occupational disability. It covers optimal medical care, the adaptation of the new life style (e.g. life in a wheel chair) and the potential loss of insurability. Understanding of the contractual definitions and criteria for a claim to be admitted is important as a benefit will only be paid if these criteria are met. An understanding of the difference, both in terms of cover and cost, between Classic event defined products, and the new generation of event and outcome definition tiered products is important. There are a number of different product variations available in the market and an understanding of what the policy covers and how benefits will be paid is paramount.

The purpose of this product is to provide a percentage of the benefit amount as a lump sum if the insured life meets the requirements of one of the claim events defined in the policy documentation.

Details of the product

Physical impairment products typically only provide cover for loss of limbs (fingers, hand, foot, arm, leg), speech, hearing, vision, confinement to a wheelchair and severe burns. In practical terms it covers conditions that will impair one's ability to move physically.
The difference between [functional impairment] and physical impairment products is that functional Impairment usually covers impairment of any limb or organ (i.e. whole body cover) whereas physical impairment covers only the limbs and senses mentioned. Physical impairment can therefore be seen as a defined sub-set of functional impairment claim events. In addition, the claim events for physical impairment are not linked to your ability to perform our current job, and therefore the benefit provided is not income dependent and is not intended to replace lost income.
The claim event is usually the insured's total and permanent impairment that cannot be substantially removed by reasonable treatment. This may include surgery or other treatments, which the insured life can reasonably be expected to undergo, with due allowance for the risk and prognosis of success of such treatment.
A lump sum becomes payable where the claim event's requirements have been met. Benefits are 100% of the sum insured for severe impairments and tiered for less severe impairments. It is possible to claim more than once against this cover however overall claims cannot exceed 100% of the sum insured. As the claim events are not linked to your ability to perform your current job, the benefit provided is not income dependent and is not intended to replace lost income.
The sum insured (total cover) may be increased by means of voluntary premium or cover increases. For example, the policyholder may elect a cover (sum insured) increase of 5%. The premium will then increase annually in order to pay for the annual sum insured increase.

Premium increases

There are a number of options available to pay for a level sum insured:

• Level premiums that stay the same for the duration of the cover.

• Compulsory increasing premiums that increase every year without a corresponding increase in the sum insured. This enables the client to pay lower premiums initially, since the premiums due later will be higher than the corresponding level premium. The higher the compulsory increase in premium, the lower the initial premium.

• Other increases later on, which are priced in after, say, 10 years, or benefits that are only priced for 10 or 15 years. At the end of the 10 or 15 years the benefit is then re-priced and the premium increases.

Premium guarantee terms are available for up to 15 years.

Waiting period (deferred period)

The lump sum claim amount will only be paid after the insured life has been physically impaired for at least six months. The policyholder is responsible for payment of premiums during the waiting period.

Exclusions

Common exclusions would include self-inflicted injuries and war and riot exclusion clauses.

General

This product is especially useful for students or housewives who wouldn't qualify for regular disability benefits. It is interesting to note that these lives only make up a small proportion of the sales. In a number of cases this product is sold instead of an occupation product although that is not the intention of the product. The product can be [accelerator] or [stand-alone].

The purpose of this benefit is to provide a lump sum or income benefit in the event of the life assured becoming permanently impaired in accordance with pre-defined criteria.
With traditional disability benefits, a person's ability to carry on with a current or similar job is a determining factor for the payment of benefits. This is not the case with functional impairment as you are insured against the loss or impairment of a particular function and not against the inability to continue generating an income.

Details of the product

This benefit is payable in the event of the insured becoming permanently impaired, due to accident or illness, which results in a loss of ability to function.
Either a lump sum or monthly income amount is paid to provide for the costs associated with living with impairment, such as specialised care, equipment or a home nurse. Benefits are 100% of the sum insured for severe impairments and tiered for less severe impairments. It is possible to claim more than once against this cover, although overall claims cannot exceed 100% of the sum insured. As the claim events are not linked to your ability to perform your current job, the benefit provided is not income dependent and is not intended to replace lost income.
The sum insured (total cover) may be increased by means of voluntary premium increases. For example, the policyholder may elect a cover (sum insured) increase of 5%. The premium will then increase annually in order to pay for the annual sum insured increase.
Functional impairment policies can be taken out for a maximum term of 20 years, with an upper age limit of for example 65.

Premium increases

There are a number of options available to pay for a level sum insured.

• Level premiums that stay the same for the duration of the cover.
• Compulsory increasing premiums that increase every year without a corresponding increase in the sum insured. This enables the client to pay lower premiums initially, since the premiums due later will be higher than the corresponding level premium. The higher the compulsory increase in premium, the lower the initial premium.
• Other increases later on, which are priced in after, say, 10 years, or benefits that are only priced for 10 or 15 years. At the end of the 10 or 15 years the benefit is then re-priced and the premium increases.

Deferred period

Waiting period: there aren't any explicit waiting periods but there are implicit waiting periods e.g. some conditions require maximum medical improvement (may need to explain what this is or reference to where the explanation is elsewhere in the document). . needs explanation
The benefit may require the insured to survive for a pre-set period, say 14 days, in order for the claim to be valid.

Underwriting process

Underwriting process is comprehensive and is similar to that used for critical illness cover sometimes a mixture of disability underwriting is used.

Claims process

Claims process: claims criteria include functional impairment (FI) definitions and Activities of Daily Living (ADL) criteria. (ADLs measure your ability to perform basic functions such as washing or eating.)

Exclusions

Common exclusions would include self-inflicted injuries and war and riot exclusion clauses. Furthermore there are also embedded exclusions like low level heart attacks.

General

This product is especially useful for students or housewives, who wouldn't qualify for regular disability benefits. It is interesting to note that these lives only make up a small proportion of the sales. In a number of cases this product is sold instead of an occupation product although that is not the intention of the product. The product can be [accelerator] or [stand-alone].

The benefit is designed to contribute towards the cost of a funeral on the death of the insured person/s by providing the nominated beneficiary with a lump sum payment. Funeral benefits are a specific "insurance class" as defined in the Long-term Insurance Act and the maximum benefit that can be paid is currently R10 000. Funeral products are usually designed to cover the whole family, including the policyholder's spouse, children and other relatives like parents, parents-in-law, and siblings. Funeral benefits are sometimes also referred to as "assistance" benefits.

Details of the product

The sum insured, per beneficiary, is fixed and will not increase or decrease throughout the term of the product. Premiums are usually dependent on the age of the insured and the number of lives covered. The premium will remain the same for the duration of the policy. The product is usually sold for a fixed term, for example 15 years, or for the life-time of the insured and premiums are paid for the benefit term. Premiums are usually not guaranteed and may be increased should the insurer feel that the premiums are insufficient to cover the claims and expenses. Due to the fact that very little or no underwriting is done on funeral benefits, it is usual to have a waiting period during which no (or a reduced) benefit will be paid. The waiting period will typically be six months but may be up to five years with, for example, no benefit payable in the first year of the policy, 20% in the second year, 40% in the third year, 60% in the fourth year, 80% in the fifth year and 100% thereafter. One of the key features of funeral insurance is that the benefit is paid out very quickly, often within 24 to 48 hours. This is necessary because the benefit is designed to cover the cost of the funeral. Therefore very little claims information is required, often only a death certificate. Exclusions imposed vary from company to company. Common exclusions would include a two-year suicide exclusion, any pre-existing conditions, self-inflicted injuries, substance abuse, war and riot, and an atomic, biological and chemical exclusion. Some companies also offer value add benefits, for example assistance with legal expenses and repatriation of the deceased's remains.

The purpose of this benefit is to provide a monthly income in the event of the insured becoming temporarily or permanently disabled due to bodily injury or illness such that he/she is unable to perform his/her occupation or a reasonable other occupation as defined in the policy.

Own occupation disability

Own occupation disability means that you are no longer able to perform the duties of your current occupation due to medical impairment. Note that own occupation does not refer to the insured's current employment or specific job, but rather to profession, trade, field or business in general.

Own or reasonable other occupation disability

Own or reasonable other occupation disability refers to being impaired to such an extent that you cannot perform the functions of your own occupation or a reasonable alternative, based on your skills and training.

Product Details

Disability income cover is intended to compensate for the loss of earnings experienced as a result of disablement. The following variations of disability income cover are available:

• Monthly income on impairment of the insured, where the impairment is assessed according a scale of Activities of Daily Living (ADL monthly income benefit may also be available past normal retirement age).
• Monthly income to cover business expenses.
• Temporary disability income that pays out for a limited period, usually six, 12 or 24 months.

A monthly income amount is paid to replace income lost due to being unable to perform one's occupation. The monthly income is restricted to a percentage of normal monthly income as defined in the policy, usually 75%. The insured can choose between level and increasing benefits. Various escalation percentages are offered, but the escalation is capped at CPI. Benefit increases are useful to allow the monthly income benefit to keep pace with inflation.

The term of the cover can be fixed for a number of years (say, 20) or to a specified age limit (say, 65). The benefit will end at:

• The benefit cease date as specified in the policy schedule.
• Normal retirement age (when the insured's pension would normally become payable).
• Death of the insured.
• Payment of a claim.
• Contributions not being paid by the due date.
• The contract being out of force.

Premium guarantees of up to 15 years are available. Various deferred periods are offered. These are generally seven days, one month, three months, six months, 12 months and 24 months. The deferred period (also referred to as waiting period) is the time that the life assured must have been continuously disabled before benefits will be paid. The longer the deferred period stipulated in the policy contract, the cheaper the cover. No beneficiaries can be nominated for this benefit . the only beneficiary is the insured person. Underwriting is done according to company procedures for disability benefits. The total sum assured for underwriting is determined as the monthly benefit x 12 x benefit term (in years).

Claims process

The insured is responsible for proving that he/she is disabled in terms of the policy definitions. This may include undergoing medical tests/ examinations at his/her own expense. The insured must be willing to undergo a reasonable amount of re-skilling if an own or any reasonable other occupation definition applies. A claim is generally not considered valid if the insured person can perform more than 75% of the duties of his/her occupation. Partial benefits are generally payable if the benefit payment is more than 25% of the total benefit. The assessment is based on:

• Extent of the insured's inability to perform occupational duties.
• Loss of earning ability.
• Income earned while disabled.

Exclusions for individual policies

General exclusions:

• War, terrorist activity, civil commotion, riots or rebellion.
• Attempted suicide and self-inflicted injuries.
• Alcohol, poison and drugs.
• Radioactivity and nuclear explosion.
• Wilful violation of the law.
• Hazardous pursuits.
• Negligence.

• Pregnancy
• Refusal to follow/undergo reasonable medical treatment.

General

This product is sold as a stand-alone benefit only. It is common for an automatic waiver of premium on disability to be included for this type of cover. It is generally a requirement that policyholders must notify the life office of all changes in their occupation or the duties as a result of their occupation. If the changes mean that the insured person now falls into a new risk category, the life office may review the contract by:

• Adjusting the contribution payable
• Changing the benefit terms, or
• Cancelling the benefit entirely

Over insurance

The LOA Code of Good Practice for Disability Insurance states that "the principle is to avoid accepting cover at levels that would make an individual financially better off after claiming." There is a moral hazard in that, by offering excessive benefits, an incentive to claim could be created. The life assured will therefore be asked to disclose all other disability cover at new business stage so that the life office can ensure that he is not over insured. If, however, the client is over insured (as determined by tables set out in the Code of Good Practice), the benefit may be reduced appropriately at claim stage.

The purpose of this cover is to provide a lump sum benefit should the insured person become permanently disabled and therefore unable to work and earn an income (occupationally disabled). The benefit is meant to compensate for future loss of income and costs associated with being disabled.

There are two types of lump sum disability cover available:

• Own occupation disability
• Own or reasonable other occupation disability

For example, if you are a surgeon and you lose your dominant hand you will no longer be able to perform surgery. Your claim for a lump sum disability benefit is likely to be successful if you selected the own occupation disability definition.

If as a surgeon, you had selected the own or reasonable occupation disability definition, you may not be able to claim for a lump sum benefit under this option as you may still be able to, say, engage in the area of research and development in a pharmaceutical environment and are therefore able to perform the duties of a reasonable alternative occupation. For this reason, the own occupation benefit is more expensive than the own or reasonable occupation benefit.

A surgeon, however, who suffers a stroke and is no longer able to perform surgeries or lecture, would be able to claim under own or reasonable other occupation disability cover.

Payment of benefit

The benefit is payable as a lump sum once permanent disability has been established.

Tapering of benefits

The purpose of the lump sum benefit is to protect against loss of future income due to disability. As you approach retirement, the need for this cover reduces. For example, a person who is disabled at age 32 needs to replace 33 years of income, whereas a person disabled at age 62 only need to replace three years of income. Most companies therefore taper the benefit, meaning the sum assured reduces by 20% each year from age 60 until at age 64 it is 20% of the original sum assured. Some companies offer a non-tapering option.

Term of product

The benefit term is normally until the contract anniversary before your 65th birthday. The benefit will cease on the earliest of:

• The benefit-cease date as specified in the schedule.
• Death of the life assured.
• The payment of a claim.
• Contributions not being paid by the due date.
• The contract being out of force.

Term of premium payment is usually until the benefit expires . usually the contract anniversary before your 65th or 70th birthday.

Premium guarantee term

There may be a guarantee that premiums will not increase during a certain period. At the end of the guarantee period the premium may increase as a result of a review of general risk rates. These increases are not impacted on by your age or medical status and you do not need to undergo new medical examinations and blood tests.

Waiting period

There may be a waiting period before the benefit is paid. This could range from three to six months, although some companies no longer impose a waiting period. Should it take longer to establish whether the disability is permanent, the benefit may be paid after the waiting period. Similarly, if permanent disability can be established sooner, the benefit may be paid before the end of the waiting period. Where there is no waiting period, the benefit will be paid once the permanence of the disability can be confirmed. Premiums still need to be paid during the waiting period. If the life assured dies within the waiting period, a disability claim will not be paid.

Beneficiary

The beneficiary will be the life assured, although in the case of business assurance, the beneficiary could be the business itself.

Underwriting process

In calculating contributions the following information is usually taken into account:

• Age
• Income and education level
• Occupation (Different occupations have different risks associated with them. Working as an accountant in an office environment is less risky than working underground as a miner.)
• Smoker status
• Disability benefit selected
• Whether the benefit tapers

Claims process

It is the assured's responsibility to prove that he/she is disabled in terms of the policy definitions. This may include undergoing medical tests/ examinations at own expense. The claim might not be paid if the life assured refuses to undergo reasonable medical treatment to improve his condition. Depending on whether the life assured opted for own or own/reasonable occupation disability cover, the person may be required to undergo a reasonable amount of re-skilling.

Exclusions

Over and above the general exclusions applicable, there may also be specific exclusions for lump sum disability contracts. These include exclusions for certain back and psychiatric conditions. It is important for the clients to read their policy documents to determine what exclusions apply. Some companies may offer the option to remove these specific exclusions from the contract, at an extra premium.

Options on the product

The insured person has the option of selecting either "own occupation" or "own or reasonable other occupation" at new business stage. Note that own occupation is the most professionally geared product. The life insured can select from options which relate to benefit and contribution levels. These include:

• Automatic sum assured increases
• Premium patterns
• Benefit tapering
• The life assured can also select whether to take this as a stand alone or accelerated benefit.
• Conversions to other types of cover (e.g. functional impairment)