Are life policies a rip-off?

2013-03-31 10:00

There are simple things you can do to ensure that payouts are made after you pass away

Busi writes: Are life policies a rip-off? I have heard stories about how policies do not pay out when you need them most, along with excuses as to why they won’t pay.

Can you tell me, as a neutral person, about the benefits and disadvantages of life policies?

Maya replies: As a starting point, it is important to deal with a reputable company, not necessarily because you won’t ever have a problem, but because they have reputational risk and stand to lose if their brand is believed not to pay out fairly.

In addition, they will be members of the Long-Term Insurance Ombud, so you will have somewhere to lodge your complaint.

The ombud has made many rulings against insurance companies in favour of the consumer, which we have published, so the office does provide you with some protection.

Unlike disability cover, life cover is generally pretty straightforward when it comes to death – there is no disputing that a person is dead!

The problem, however, can arise with paying out life cover where there has been no underwriting when taking out the policy.

With no underwriting, an insurer provides the cover without doing any medical checks on the policyholder, but if you die within a short space of time from an illness, they may not pay out.

This is to prevent people who already know they are ill from taking out cover just before they die. If you took out cover, not realising you were ill or became ill shortly afterwards, this could be prejudicial.

It is better to opt for insurance cover that requires underwriting. In other words, where you are required to complete a medical form and usually undergo a blood test.

This type of cover can also result in lower premiums for healthy people as they have done a proper risk assessment.

The disadvantage is that there is usually a minimum amount that they will insure for in order to cover the costs incurred in underwriting a new client.

I would also recommend that you take cover out through a reputable adviser. A good financial adviser can smooth the claims experience as they manage the administrative side.

They would also be able to inform you if there are any clauses or exceptions you need to be aware of.

As with any product, make sure you are dealing with reputable people and ask for references.

The discipline to start saving

Nkateko writes: I have just turned 22 and regard myself as a responsible young lady. I have been working for a year and have R1?000 a month to save. I know I should be saving, but I don’t know where. In the process of trying to figure out which savings account to open, I end up spending the money. I am looking to get a car in the next year.

Maya replies: It is very important to activate a debit order so that the money is out of your account before you spend it. You need to set a few goals and use the extra money to build a solid financial plan.

The rule of thumb is to first build up emergency funds so you do not have to go into debt due to an emergency. In his book The Total Money Makeover, author Dave Ramsey recommends you have at least R10?000 in a money market account that you can access in an emergency.

Speak to your bank about the best rate they can offer with no fees and start a debit order to build up your emergency fund. If you are able to save R1?000 without trying, you may find you can save R1?500 with a bit of effort and reach your goals sooner. In that case, you could have your emergency fund ready within seven months.

Once you have that cushion, you can start putting money aside for your car. Try to save as much as you can so that you have to take on as little debt as possible.

By purchasing a second-hand car, you get far more value for your money. Remember your car is about transport; it should not be a status symbol.

As this would be a medium-term goal of at least five years, you need to consider an investment that will give you growth, such as a unit trust.

A flexible unit trust that gives you exposure to equities, bonds and offshore would be a good option. Asset managers, such as Coronation or Investec, charge no upfront fees if you invest directly.

It’s tough to cancel your gym contract

Keabetswe writes: I signed a 12-month contract in December 2011 with Planet Fitness and the contract was supposed to end on December 2012. I was unaware that the gym renewed my contract for another year. The debit orders are coming off my bank account and the gym refuses to stop unless I pay the R1?000 for January and February. I lost my job in October 2012 and I can’t continue paying, which I explained, so I would like them to cancel the membership and not keep charging me.

Nicky Campbell of the SA Law Centre replies: Gym contracts can be dangerous. I have previously taken Zone Fitness to task with its fixed-term contracts as it was charging a 75% cancellation fee in instances where consumers cancelled prematurely.

In that case, the consumer commission found that 75% was not a reasonable cancellation penalty.

Section 14 of the Consumer Protection Act deals with the expiry and renewal of fixed-term agreements.

In this instance, the expiry of the agreement is not in issue, but rather the automatic renewal of the contract on the part of Planet Fitness.

In terms of this section, suppliers cannot automatically renew a fixed-term agreement that has expired without giving the consumer written notification prior to the expiry of the agreement.

This written notification must be given not more than 80, or lessthan 40, business days before the expiry date of the fixed-term agreement. When fulfilling this obligation, a supplier must notifythe consumer, in writing, of the following:

» The impending expiry date;

» Any material change that would apply if the agreement is renewed or otherwise continued beyond the expiry date; and

» That the agreement will be automatically continued on a month-to-month basis unless the consumer expressly directs the supplier to terminate the agreement on theexpiry date or agrees to a renewal of the agreement for a further fixed term.

The consumer could therefore address a letter to Planet Fitness detailing the above section and that she reserves her rights to refer the complaint to the national consumer commission.

Leaving your children out of your will

Peter writes: I have decided not to include my two older sons in my will as I don’t think they need me any more.

One son is 26 and the second is 21. One is on drugs, despite my interventions. I have another two children, who were born after my divorce, aged six and five, and are from different mothers.

What I want to know is whether the law can change my will after my death and give them a share of my estate, even if I have specifically excluded them.

Chris Murphy, a member of the Fiduciary Institute of SA, replies:

Our South African common law upholds “freedom of testation”, granting us the right to leave our assets in our will (our estate) to any person. However, this right is not absolute and can be limited in certain circumstances. For example, if it is contra bonos mores (against public policy) or if it is unlawfully prejudicial, offensive or illegal.

There is no obligation in South African law on parents to leave assets in their estate to their children.

There is, however, an obligation for parents to maintain minor children or dependants.

A claim can be lodged by such a child against the estate of a deceased parent for maintenance, but true dependency would have to be proved.

In this example, the minor children of five and six, if not adequately provided for in the will, would, in all likelihood, be able to lodge a claim against the estate for maintenance.

The older children, as they have already reached majority (18 years or older) would not, in all likelihood, be able to lodge a claim for maintenance, except possibly the son who is addicted to drugs, if he could prove that he is still dependent on the testator (the person making the will).

It is thus important that you have a valid, enforceable will to ensure that those you want to inherit will inherit, and those you do not want to inherit, do not.

If there is no will and the estate is administered in terms of intestacy (subject to the Intestate Succession Act) the rules are automatic, and all children will inherit, even if this is against wishes you may have expressed while alive.

» Murphy is a director of Legacy Fiduciary Services and a member of the Fiduciary Institute of SA (Fisa). You can find a Fisa member to contact on its website: www.fidsa.org.za

Cashing in your Phuthuma Nathi

Mehul writes: I have inherited some BEE Phuthuma Nathi (PN) shares. I am trying to find out when and if those shares will be converted to Naspers shares.

Craig Gradidge replies: PN shares are unlikely to be converted to Naspers shares. PN is an investment in MultiChoice. There is another scheme out of the Naspers stable, Welkom Yizani, which is invested in the Media24 business.

Go to www.phuthuma.co.za to see how the share is trading. You are also able to trade and sell your shares there if you wish to. The site contains other useful information as well.

»?Gradidge is the owner of Gradidge-Mahura Investments

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