Both the Long-term and Short-term Insurance Act stipulate under the policyholder protection rules that policies should be issued in a clear and understandable format.
The Consumer Protection Act elaborates to say that documents must be written in plain language. This means investment terminology should, as far as possible, be explained clearly so that the person on the street can understand what is meant.
Ryan Switala, head of risk product development at Liberty, says the approach taken may differ from product to product. “A few years ago, we restructured our Lifestyle Protector policy documents to include a policy summary. The summary provided a short and basic description of the policy. A full set of terms and conditions was freely available to customers if they wished to see it.”
Switala says Liberty also regularly tries to identify any wording on policy documents that might be unclear or difficult to understand, so it can be simplified.
While it may be possible to simplify and reduce the length of a policy document to some extent, there is a limit to how much this can be done.
For example, a critical illness policy needs to list the critical illnesses that are covered and provide detailed medical descriptions for each of these conditions to ensure that there is an objective way for your claims to be assessed when they arise.
Some financial service providers also include their terms and conditions on their websites. Switala says this is acceptable, provided that it is clear to the client where to access the terms and conditions.
“The consumer’s appetite for the electronic medium is increasing, so we need to adapt to cater for their demands by making it easy to access information when they need it and how they need it. You could also choose to have your policy terms and conditions emailed or posted,” he says.
What the terms mean
Underwriting
Underwriting is the process that insurers follow when they are deciding if they will accept your application for an insurance product and whether any special conditions will be attached.
Special conditions could include extra premiums (known as loadings) that might need to be paid or additional exclusions that need to be applied.
Underwriting may involve obtaining any information related to assessing the risk of insuring you. Typically this includes:
» Details about your health;
» Details about your job;
» Any lifestyle information. For example, do you participate in dangerous leisure activities like skydiving; and
» Financial information to ensure the cover applied for is appropriate to your situation.
Impairment
This describes a medical condition you have suffered or an event that has occurred that has reduced your ability to function physically or mentally in some way.
Disability
Disability in an insurance context usually means “occupational disability”. Occupational disability means you are unable to perform the duties of your occupation due to injury, illness, accident or surgery.
There are some variations on the precise definition that might depend on the particular insurance product. For example, it could mean you are unable to perform the duties of your specific occupation or it could mean you are unable to perform the duties of your, or any similar, occupation you may reasonably be expected to perform, given your education and experience, or it could be that you are unable to perform the duties of any occupation.
Sum assured / Sum insured
The sum assured (sometimes referred to as the sum insured) is the amount you are covered for on your insurance policy. For example, in the case of a life insurance policy, it will be the amount that would be paid out on your death.
Annual benefit increase (ABI)
This refers to the percentage your cover amount, or “sum assured”, will automatically increase by each year. For example, if you initially select a cover amount of R1 million and an ABI of 10%, your cover will grow from R1 million in the first year of your policy to R1.1 million in the second. The advantage of an ABI is that it allows your cover to grow alongside your insurance needs each year without you having to have your application and risk reassessed each year.
Annual contribution increase
This is the percentage by which your premiums will increase each year. There are two main types of premium increases that may apply. First, the increase could be linked to how you have chosen to pay for your cover. For a level amount of cover, you can choose whether you would like to pay a premium that will stay the same, or you could choose to have a lower premium that will increase over time. The second type of increase is where your premium increases in line with your annual benefit increase.
Whole of Life
This is the period of time the insurance cover will be provided for and means that the cover you have selected will be in place until you die, provided you pay your premiums. With some types of insurance, you may have a choice on the period of time you will be covered by the policy. You may have the option to select that you will be covered for the next five years, until a specific age or until you die.
Financial needs Analysis (FNA)
This is a process where an accredited financial adviser assesses your current financial situation and determines what financial products you need to have to protect your financial wellbeing, and to achieve your financial goals and aspirations. An FNA leads to a financial plan that details your financial needs and how these needs can be met.
First assured
First assured means the person who is covered by an insurance product or benefit. Some insurance products provide the option of covering more than one person on the policy. In such cases, “first assured” is simply the reference to the first person listed.