While the outbreak of COVID-19 raised awareness around the need for life cover, especially for those with financial dependants, for policyholders who lost their income, the premiums became unaffordable. This led many people to lose their cover at a critical time.
It is important to understand how your life cover works and what your options are.
We received many questions from our viewers about how their life cover works. In the event of death due to COVID-19, a life cover policy would pay out, as COVID19 is not a pre-existing condition.
However, many policyholders were disappointed to discover that if they lapsed their policy, they lost all their life cover, despite having paid premiums for many years.
Life cover works the same as your car insurance – if you don’t pay, you don’t have cover. Even worse is that if you lapse the policy, when you want to take out life cover again, you may find you have to undergo a health assessment known as underwriting. If you have developed a chronic illness like diabetes, for example, you may not qualify for the same cover you had previously.
Another misconception was that life insurance includes some form of investment, and there was an expectation that when cancelling the policy there would be a payout. While some insurers are innovating to include a savings element, most life cover policies do not have a savings portion, so if you stop paying contributions, there is no benefit or investment payable to you.
Life cover is an important part of your financial plan, so make sure your fully understand how your cover works and how to benefit from it.