By Vincent Kinyanjui
Life insurance can be demystified by understanding the policy document, which forms the agreement between the insurer and the insured.
Regardless of whether the cover is a whole life, term assurance or a unit-linked product, the fine print may not be understood by some people.
However, one thing that you may not be aware of when buying a life insurance is the waiting period. This is a period set by the insurer that should a claim occur, the insurer is not under obligation to honour the payment. This usually happens when individuals are not required to undergo medical examination.
For example, a death claim might be dishonoured should it arise after four months from the inception date of the policy. This applies to deaths arising from illness. The waiting period may vary but it is usually six months.
Guarantee period
Another thing that you may not be aware of is the provision of a money back guarantee period. It’s also referred to as the right to review or a cooling-off-period. This enables a client to cancel their contract and get a full refund of initial premiums paid. The review period varies from insurer to insurer but commonly ranges from a period of 10 to 30 days.
After buying of a life cover, the assumption is that it will pay out on the death of the insured. However, the exclusion clause shatters this myth and what many are not aware of is that the exclusion clause shields the company from honouring death claims as a result of suicide, self/inflicted injuries, criminal activities, abuse of alcohol and drugs, participation in military activities,horse riding, mountaineering, motor racing and death caused by aviation other than as a fare paying passenger on a scheduled air service over an established passenger route amongst others.
‘Eat’ people’s money
A common misconception that exists is that insurance companies ‘eat’ people’s money. The main reason as to this fallacy is that when the individual stops remitting premiums before the contract term has expired and depending at what stage of the premium payment one is in, premiums may not be refunded. However, this is because life policies acquire a cash value after three years of premium payment. In actual sense therefore, the insurer does not have the money to refund if a cash value has not been acquired.
For individuals who are unable to continue with their premium payments, they can opt to convert the policy to a paid-up benefit. In such a case, the policy will lose all benefits — life cover, permanent disability and other riders. What will remain is the amount in the investment account. An insurer also has right to review or adjust the policy fees or risk charges if circumstances demand.
