Common Insurance Pitfalls

The true test of an insurance provider comes not when you take out the policy, but when it comes time to claim. In this episode we ask Matan Abraham how to avoid problems in the claim stage. He also explains the link between healthy finances and longevity!

Everyone sees risk differently and has different circumstances and so there is no “one size fits all” method for determining how much cover you need. 

Remember that it is very important to review your policy regularly as your circumstances change - have you taken on more debt, or paid off debt, have you got married or divorced, have you had children? Also remember to shop around for an insurance provider that suits your particular needs.  

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This episode is brought to you by Elevate. Visit their website or Facebook page to find out more.

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Transcript

[Matan Abraham  0:00 
For sure. 100%. I mean, every policy that you buy has almost a life that starts one place and evolves over time. And I think understanding how a policy evolves over time is key to make sure that you could have clear understanding at the start, but it may not be the case a few years down the line.]

Diana Granoux  0:20  
My name is Diana and this is The Family Finance Show: the podcast to help you manage your family's finances better. Every week, we share an episode on topics relating to increasing your family's income and managing expenses, controlling your debt, and investing for the future.

The true test of an insurance provider comes not when you take out the policy, but when it comes time to claim. In this episode, we ask Matan Abraham how to avoid problems in the claim stage. He also explains the interesting link between healthy finances and longevity.

This episode is brought to you by Elevate Life. Worry less and live more with smart life insurance from Elevate Life. Smarter benefits, smarter rewards, smarter premiums. Elevate Life is all about you. Enjoy the show!

Hi, Matan, and welcome to The Family Finance Show. So great to have you on the show today.

Matan Abraham  1:22 
Thank you so much, Diana.

Diana Granoux  1:24 
Matan, the true test of an insurance provider usually comes at the time of claiming; not when you take out the policy, but when you have to claim against the policy. And this is where so many people encounter problems. What kind of problems can arise during this claim stage? And how can our listeners avoid these common problems?

Matan Abraham  1:43 
Sure. I mean, you're right on the money. I think that's probably one of the biggest frustrations of the insurance industry that there's this perception that you pay all of these premiums over a long period of time and then the insurer comes at the end of the day and doesn't want to pay your benefits. And it can be distilled into a couple of key themes. I think the first that every person should be very cognisant of is this idea of non-disclosures. And when you're starting out and buying a policy, you should always be very careful on the information that you're sharing and that it's as complete and accurate as possible. Because you never want the insurer to come back at claim stage and say, "Oh, you didn't tell me x, y and z. And that's the reason for not paying the claim." So I think making sure that you understand the application processes as detailed as possible, making sure that you answer as comprehensively as possible and you should be A-okay.

And then I think the second key way to make sure that you have full confidence in your cover is knowing that your cover always matches your need, because you may get the claim paid by the insurer at the end of the day, but it actually may be a lot less or different to what you expected. And then you have less in your hands to pass on to your dependents when that time comes if you pass away or get disabled or severely ill. And that should never be the case. So making sure that you review your policies, making sure you understand how they evolve over time, will make sure that at the time of claim, the cover that you're actually getting in hand is what you expect to move onto that next stage of your life.

Diana Granoux  3:25 
And just to illustrate this point a little bit in a story way for the listeners is an experience I had back in 2008. It wasn't life insurance - obviously, I'm still here today - but it was a car insurance and I worked for this telecoms company and they paid my car insurance on my behalf as one of the staff benefits, strangely enough. And I had a VW Chico and the car was stolen. So it came to claim stage. And I realised at claim stage that the insured value of the car was much higher than the book value. So for some reason, there was about a R20,000 difference that it was insured for, like let's say it was R50,000 and the book value was R30,000. And so the insurance only paid out the R30,000. But the company who had been paying the premiums on my behalf had been paying premiums to the value of a car worth R50,000. So I was quite annoyed at that on behalf of my employer who was paying the premiums, but also just a good way to realise that just because you've insured something for a particular value, it doesn't mean that it will necessarily pay out at that value. Obviously life insurance is a different story here. But it's just a way to understand that you really need to understand what you're paying for with your premiums.

Matan Abraham  4:45 
For sure. 100%. I mean, every policy that you buy has almost a life that starts one place and evolves over time. And I think understanding how a policy evolves over time is key to make sure that, you could have clear understanding at the start, but it may not be the case a few years down the line. And it's very important to keep that aligned and that front of mind and make sure that you do your annual reviews of all of your insurance policies.

Diana Granoux  5:16 
Every person sees risk differently in their lives and insurance is about putting those measures in place to mitigate these risks. When our listeners are thinking about taking out life cover, what are the risks that they should be thinking about?

Matan Abraham  5:28 
Sure, that's a great question. I think it really comes down to thinking about your family or, more holistically, the dependents in your life and asking the question, "What if the worst happens?" So when we think about life insurance, it generally covers three quite significant events in your life: obviously, you passing away and your dependents having to live on without you, potentially without your income and your assets to support them; or you getting disabled and having to continue living without the ability to earn an income, or having to transition into a new stage of your life where you need homecare or something like that; and then severe illness for even more - disability is on one level, severe illness are those events that truly change your life, and may be terminal in nature and shorten your life to some extent. And how those affect your dependants and you at different points in your life are very different.

So I think, when you think about those risks, you need to think about, "What happens if I pass away and have young children, but there's a home loan to cover or their school fees to cover?" And that's where the thought needs to be and say, "Well, that's the risk. Now what do I need to do to cover that risk?" And I think if you focus on that throughout your life, your life cover will always match your needs as closely as possible. So I think some examples are, for younger families, definitely covering things like credit and loans that you've taken out, expenses over time to support your children and the rest of your family that your income is currently supporting. And then later on in life, it could evolve to things like estate duties is a common one. So that when you pass away and you have assets, that your inheritance isn't going to the tax man, for example, and there's enough life cover to cover those fees. So it really is, what we actually call it in actuarial science, is life staging. That the need and the risk evolves over time and so should the cover that you have evolve with it.

Diana Granoux  7:43 
Something that I have found quite unique in Elevate's approach, Matan, is the clear link that you make between the physical health of a person, their financial health and their longevity. So basically, if I understood it correctly, people who take care of their financial wellbeing are generally healthier and live longer. So that's quite an interesting correlation. I mean, I intuitively know that to be true, just based on my experience, but as an actuary, you probably have the data to back this up.

Matan Abraham  8:12 
Ja. So when you think about it, it's very simple: positive, short-term life habits leading to a longer life. It seems almost like a no-brainer and common sense. But actually, as you say, like backed by a huge amount of data to support it. And I think interestingly, over more recent times, the financial side of things coming so much to the fore, I think even something like COVID-19 and the terrible financial situations that some people were put under. I think a lot of people can resonate with how much stress that actually puts you and your family on and that can manifest, obviously, in things like poor mental health, not knowing where to turn, and that then converting into poorer physical wellbeing. But also there's data to support that poor financial wellbeing actually results in increased things like inflammation and slower recovery rates and things like that. So it's really a key element that a lot of people think about when they're engaging with their loyalty programmes and financial service products, this link between things like wearable data and maybe some clinical data with their financial products, and how those two can relate to one another and result in a longer life. The financial element is as important and that's why we've taken a strong interest in that and really put a lot of incentive on the table for people to maintain that and try to give them the tools to stay creditworthy, as well as financially well.

Diana Granoux  9:56 
It's so interesting. It's such an interesting concept that you're actually using your policyholders' health data and their financial data, their credit score, their wearables, as you mentioned, to just get this holistic picture of a person. So I think that's really interesting and not something that I've heard other insurance companies doing so far.

Matan Abraham  10:17 
Ja, so I think for us, it's very much a no-brainer, for what we're trying to achieve with our customers is getting them to actually go on a journey with us, more than anything. And our byline at Elevate is "helping people live a long, healthy and prosperous life". And the starting point of that is for us to understand our customers, and then have the data at hand to understand what their baseline is, and how we can get them from their current situation, to the most well and prosperous version of their life. And how we do that is that we ask them to opt in and share data with us. In so doing, we understand that information. And we actually start off by presenting that data back to the customer. Because what we want people to see is exactly the data that they're sharing. So they can take control of that and take control of their journey, see how as they're improving and changing their habits, it's manifesting in the data that they're sharing. So it's putting them in control. And then you're starting that two-way relationship with our customers, giving them the education and the goals on how to improve.

And then of course, I think people know, it's great to hope that everybody does things in their best interest - and we really, always hope that they do - but the rewards are always a sweetener, to help people along the way and get them to overcome that inertia to change. So we've put a lot of rewards on the table to help people improve and be the most well and most prosperous version of what they can be.

Diana Granoux  11:53 
Ja, I think that's everyone's goal in life. So it's great that you're aligning with people's personal goals in that sense. So, Matan, just to move on to something different now. This next question is a bit technical, maybe, and possibly we need a thorough explanation to do it full justice. And obviously, it differs from person to person. But for now, for our listeners. So, [laughs] can you give our listeners just some high-level tips on choosing the right benefit, premium escalations and cover term if they're looking at life insurance products?

Matan Abraham  12:28 
Sure, ja. That's a tough one. So I think there are a lot of options on the table for people to choose from. And I think with a lot of options comes the challenge on what suits you the most. And there are things like age rating in which the escalation is not just based on some percentage, but it's also based on some age factor. That can add some confusion to the mix. What I try to always boil it down to when talking to people about this and giving advice or alternatively, when we were building our product offering, is for people to always play up to the affordability-versus-benefit-richness question in their minds. So when it comes to choosing your escalation (escalation of your benefits and your premiums) it actually has a very direct connection to how much you're going to start off paying with regards to your policy. So if your benefits are escalating a lot slower than your premiums, your policy will actually start off a lot cheaper. And the reason being is that what's happening is, you're paying less now, but because your premiums are going to escalate quite quickly into the future, your premiums will actually be a lot more expensive then and as such, at the start, the premiums can be lower. Now that can work for a lot of people, and that has a stronger affordability angle, and it makes sense. But it can also result in things like looking up in 5 or 10 years and actually not being able to afford the policy that you bought.

So I think some tips of what I would recommend is always understand what is the fundamental need for why are you buying the policy, understanding what your premiums and your benefits will look like in a couple of years. So look at the escalation. And then when trying to understand where to position, say well, fundamentally, I think CPI-based or inflation-based escalations will probably match your need and be as comprehensive as you can buy. But you also have affordability constraints to consider. So then you weigh it up there. And I think beyond that, I think asking people around you as well as your brokers and your intermediaries, your financial advisors, it goes a long way in helping you get there. But I think the key is to always ask the question, always be active in that decision-making and you should be okay.

Diana Granoux  14:58 
The more questions you ask the better, because your understanding just improves with each question. And no question is a dumb question. What other common mistakes do people make when taking out insurance, especially long-term cover?

Matan Abraham  15:09 
I think the first is not actually looking at the full range of benefits that are on offer and understanding what your needs are. So your product could be very cheap and it could look very attractive at the start. But as you said in your example with the car insurance, it actually doesn't cover things as completely as possible or certain situations relative to what another product could offer, maybe at a slightly higher price. And then you're a little bit worse off at claim stage. So I think understanding the comprehensiveness of your benefit and what are the different permutations of how you could use your product is always a good idea and I think something that people don't do enough.

Then, I think, understanding the important terms and conditions that come with your products. For example, in the Disability Insurance space, you can have income protection that's based on your own occupation, and some that is based on a similar occupation. And do you understand the difference, because that actually makes a big impact on the value to you and what you'll get out of the policy in the event of disability happening. Always understand things like your laterals and can you get out of the policy? Can you review the policy? Would it be very costly to do so, to adjust the policy over time to what your needs are? And also does the premium and the benefit rely on you doing something? So I think there's a strong move at the moment for products to be very integrated. A lot of financial services companies are integrating their products among one another, and you have to do this on the one product to get this on something else. And it can look very attractive when someone shows you the proposition, assuming that you combined everything and you're doing the things that they say you should do. But if you don't do them, what is the negative? I think it's important to appreciate: is there something fundamental that you have to do in order to make the proposition as attractive as it looks when you get the quote in your hand?

I think, moving on from there, I think the pitfalls of what people don't do enough of is buying insurance early enough, because if you buy insurance late, it can become very expensive and you may actually not be able to get the cover that you need. Because the older you are, the less time that there is for pre-funding of the policy and it could be very expensive to get cover after 50, 55, those kinds of ages.

And then, I've touched on this earlier in the conversation, which is reviewing your policy frequently, making sure it always matches your needs and that it evolves over time with how your needs evolve.

Diana Granoux  17:56 
Matan, what makes Elevate different from other providers out there? And then where can people find out more about Elevate?

Matan Abraham  18:03 
So to start off where you can find out more about us - I'll start at the second question first - is you can go to our website: elevate.co.za. Also check out our socials @ElevateLifeZA or you can call us directly, so at 011 030 7184. And please go and ask your broker about us. We have a lot of brokers in our stable already, so you can get more information from them about the product offering.

But what truly makes us different - and then going to the core of why we built Elevate to begin with - is asking the question, "What is the best version of life insurance today?" And so a lot of insurance companies have been built a long time ago. It's a very established industry. And some incumbents have been around for really hundreds of years. And we had to think about, actually, if you're going to build life insurance today, for customers to get the best value proposition possible, how would we do it? And what we did was, we broke down the pillars of what make insurance what it is, and we made each of those the best that they could be. And the outcome is an offering which is very focused on the true needs of why people buy life insurance and making it very customer-centric. So for example, things like making sure that all policies in our stable come with certain standard benefits, like premium waiver, premium holidays, immediate cover (so funeral cover baked in), certain things like that which you would potentially have to pay extra for. But because we can do things more efficiently, come standard with the product.

And then going beyond that is putting the right technologies into our offering. So we've talked a little bit about how we use data to make the policy more engaging. And that is very much a fundamental to what we're all about. At Elevate, we're very much about trying to harness the common incentive between us and our customers. For us, we want our customers to be with us a long period of time. And for them, they should be living as best and as long and healthy a life as possible. And we feel that financial services products, in particular life insurance because it's a long-term relationship with a customer, does that more effectively than really anything.

At Elevate, we've also appreciated who is the face of the client a lot of the time for our end customers. And that's our brokers. So we sell a lot of our policies through brokerages and we've actually made a concerted effort to put the right tools in the hands of our brokers to make sure that they can give as optimal the needs assessment and end-value fulfillment for each of our customers through what we're able to offer our brokers in their engagements with their clients. And I think that's really set us significantly apart in our foray into this environment.

Diana Granoux  21:08 
So before we wrap up, Matan, I just wanted to add for our listeners that it's really important to review your policy. You've made this point before, but just to re-emphasise it here, as your circumstances change, you should review your policy. Have you taken on more debt? Paid off debt? Have you got married or divorced and maybe your ex-husband is still the named beneficiary on your policy? Have you had children? And these changes and others already important triggers for checking your policy. And also, it's not a bad idea to just check your provider, check what value you're getting from one provider and compare to another provider. It's never a bad idea to shop around for insurance.

Matan Abraham  21:45 
And actually, Diana, just to just to add something to that and I think another thing that we've done at Elevate which is making the lives of our clients even easier from a review perspective, is that we're coming out later in the year with needs-based products as well. So what we've done there, for example, is trying to match the cover to evolve dynamically with the needs of our customers. So for example, we have a credit cover product coming out that you share your credit bureau data with us on a monthly basis and we'll make sure that the cover evolves exactly with your credit outstanding, so that you always have the cover that you need through the life of the policy. Similarly, we have one that will match your medical scheme contributions over time, as well as all of the increases that go along with it. So when it comes to making sure that your family are catered for, from a health perspective, when you pass away or get disabled, the benefit exactly matches that need. So we're very much about putting the customer at the centre and making sure that - yes, of course, it's always important to review your policies and make sure that they're up to date - but going forward with us, we're actually trying to do a lot more of that for our customers, and making sure that the policies themselves take all of that into account.

Diana Granoux  23:03 
Awesome. And my last question, Matan, is one that I ask all my guests, and that is what is the one piece of financial advice you'd like to pass on to the next generation?

Matan Abraham  23:13  
Sho, I don't have kids myself, yet. I mean, definitely planning to soon. But I think the one thing would be to be very active in the decision-making when it comes to your financial services products. And what I mean by that is always ask the 'what' first and 'why' you're needing the products that you're doing, what you're ultimately trying to achieve? If it's investing for a particular purpose, or making sure you protect your family against certain risks, making sure that you have the money that you would want at certain life stages, whatever the case may be. So understanding what those key needs are, and then unpacking the 'how' you're going to achieve it? I think a lot of people can be passive in their decision-making, maybe be guided by what other people are telling them to do and then they lose track of what the fundamental need is, what they were trying to achieve. And then they've wasted a lot of time and maybe money and haven't gotten to where they wanted to. I think financial services products are super powerful at getting people to really live the life that they were kind of destined to with all the resources available to do so. But you have to be very active in how you go about choosing the products that you buy and making sure that you do that efficiently and effectively with the right advice and at the right time.

Diana Granoux  24:45  
Wonderful. Thanks so much for your time today on The Family Finance Show, Matan.

Matan Abraham  24:49 
I really appreciate it, Diana. Thank you.

Diana Granoux  24:51 
I hope you enjoyed the show. Visit elevate.co.za to get an obligation-free quote in just 30 seconds or ask your broker about Elevate Life's market-leading offering. Elevate Life is an authorised financial services provider, license number 50555.

Thank you for listening. I hope you enjoyed this episode. Make sure you subscribe to the podcast to stay on the journey to improving your family's financial wellbeing!