A question I am frequently asked by readers is whether assurance against accidental death and injury is a necessity or not.
The frequency with which the question is raised seems to have grown in proportion to the number of companies that have started selling stand-alone accident assurance directly to the public, normally through mail shots and television advertising.
From the start, you need to be aware of the difference between short-term accident insurance and long-term assurance. With short-term accident insurance, you are only covered for one year and the policy must be renewed every year. With long-term assurance, you are covered for a minimum of five years (as long as you keep paying the premium). You should rather opt for a long-term assurance policy because a short-term insurer can simply decide not to renew a policy or add additional qualifications to claims each ensuing year .
I have asked some of the major life assurance companies (Liberty Life, Metropolitan, Momentum, Old
Mutual and Sanlam) for their opinions on the issue. Here is a summary of their responses:
The companies say you should generally avoid buying stand-alone accidental death or injury insurance, unless it fits in with your financial needs, which must be determined by a proper analysis of your financial
situation and the requirements of your dependants.
Carl Coutts-Trotter, the development actuary for annuities and risk at Old Mutual, says you and your adviser must ensure that you have sufficient comprehensive life and disability assurance cover. This means you must establish how much money your dependants will require when you die. If you do not have sufficient capital, you should take out life assurance to make up the difference. Your life assurance must cover death by any cause, not only accidental death.
Coutts-Trotter says accident cover "is not instead of normal cover, but in addition to it".
Stuart Wenman, the divisional director of product development and marketing at Liberty Personal Benefits, says "we agree that accident assurance doesn't really fit into a properly constructed financial needs analysis, and should never be bought as a substitute for life cover".
Nevertheless, all the life companies argue that there are reasons why you should considering buying accident assurance as an add-on to full life assurance against death and disability, and why people who cannot get affordable full cover should consider taking out accident assurance.
The reasons include:
Wenman says if you are involved in an accident, you often incur additional costs, apart from loss of income, such as hospitalisation, that can "bite a big hole out of the normal sum assured (assuming little or no medical cover)".
Petrie Marx, an actuarial consultant at Sanlam, says anyone who does not consider accident assurance is ignoring South Africa's "very ominous statistics for motor vehicle accidents and violent crime".
"In South Africa, serious accidents and injuries occur on a daily basis. They can be as traumatic and costly as the diagnosis of serious diseases, such as cancer or a heart attack.
"We don't say that accidental benefits must be taken out in isolation, but they definitely complement a benefit such as dread disease in the insurance portfolio of any client," Marx says.
Marx says healthy and perhaps younger individuals might not be too concerned with, say, dread disease cover, but they have "a definite need for accidental injury benefits".
Statistics, here and internationally, show that the main cause of death of younger people is accidental death.
Marx says the main selling feature of accident assurance is that you do not have to undergo a medical check-up. This is because the state of your health is unlikely to determine whether you will be killed or injured in an accident.
So, accident assurance may be the only option for people with serious diseases who might not be able to qualify for disability, or even comprehensive life cover.
"By using accident assurance, policyholders are at least able to make some provision in terms of risk cover. In other words, it is not taken out as a gamble, but, in fact, consciously, and taking into account its limitations, Marx says.
Marx says accidental death assurance is generally cheaper than a comprehensive death benefit - not so much when you are younger, but definitely as you grow older.
He says that for a person aged 45, for example, the premiums for comprehensive life cover are roughly double those for an accidental death benefit. At age 55, comprehensive cover can cost about four times more than accidental death cover.
"If someone considers themselves to be healthy, they may decide to 'spread their risk' between both comprehensive and accident cover to arrive at a solution that is more cost-effective to their individual circumstances," Marx says.
If you decide to take out accident cover, you must be aware of the exclusions that may apply and which could result in no benefit being paid in the case of certain accidents.
Some policies exclude certain high-risk sports, but others may attempt to exclude even day-to-day activities.
For example, in his latest report, Judge Peet Nienaber, the Ombudsman for Long-term Insurance, discusses a complaint against a life assurance company that tried to reject an accidental death benefit claim by the beneficiaries of a policyholder who was killed by a motor vehicle while walking across a road.
The life company unsuccessfully attempted to repudiate the claim on the basis that the policyholder had "purposefully and wilfully" exposed himself to danger by crossing a country road.
Nienaber gave this argument short shrift, saying that a claim could not be rejected on the grounds that the person had wilfully exposed himself to danger when that person was going about his ordinary day-to-day business of life.
Coutts-Trotter says you and your financial adviser need to be aware of the exclusions on accidental death assurance products.
There will often be a list of exclusions covering activities such as extreme climbing (soloing), ice climbing or extreme altitude climbing (above 6 000 metres), cave diving, internal exploration of underwater wrecks or diving at depths greater than 30 metres, motorised racing (speed contests), boxing (including kick-boxing), base jumping, sky surfing, aerobatic flying, parasailing,and landmine blasting.
"You can, however, see that these excluded events (which come from Old Mutual's Greenlight accident policy) are usually extreme activities that do not affect most people," Coutts-Trotter says.
He says if you participate in these dangerous activities, you should familiarise yourself with the exclusions before buying the benefit.
"Most of these products are not meant to cover such specialised risks. If they did cover these events, the
premiums would have to be higher," he says.
Coutts-Trotter says more and more accident products are becoming extremely explicit about the
exclusions as opposed to having general exclusion clauses. which are open to dispute.