What does a “Piesang Skil” (which is Afrikaans for “Banana Peel”) and a life insurance policy have in common? Absolutely nothing! Were you hoping for a hilarious punch line? Sorry to disappoint. This blog post is actually about a Modified Death Benefit which might be an excellent life insurance alternative if you aren’t in the greatest shape of your life and don’t qualify for a traditional life policy. And, yes, the banana peel bit does actually tie in with the article..
You might not qualify for life insurance based on your health. Let me tell you it happens. I’ve dealt with my fair share of declined life insurance cases. “Sorry Mr Botha, based on the medical evidence we’ve reviewed we can’t offer you life cover”.
I mean just because you aren’t 100% fighting fit, doesn’t mean you don’t have responsibilities like the rest of us. You’ve got a bond and kids.
Enter the Savour of the Day – The Modified Death Benefit.
In insurance circles it’s referred to as a “Piesang Skil” policy. Why? Good question. Because it covers death as a result of an accident (like slipping on a banana peel).
“Oh, so it’s an accidental death policy Brendan”. Not exactly, let me explain.
The Modified Death benefit covers the insured life (who has been declined for a traditional life policy) for accidental death in the first (3) years of the policy. After the (3) year period is up the policy reverts to a traditional life insurance contract and will pay out in the event of death as a result of natural or unnatural causes.
But here is the real kicker!
If you pass away in the first (3) years of the policy from natural causes the insurer pays back all the premiums you’ve paid in. Absolutely no risk to you!
Here is an example to clarify things a little better:
Peter puts in an application for life insurance but he isn’t in the best shape of his life. Actually Peter isn’t very well at all! After having the medicals completed, the life insurer reviews the evidence and decides they can’t grant Peter traditional life cover.
Instead they offer him the Modified Death Benefit.
Peter is really desperate to get some life cover in place and doesn’t really have another option, so he takes up the offer. The offer is simple.
If Peter dies in the first (3) years of the policy from unnatural causes (like a vehicle accident), the insurer will pay out the insured amount. Let’s assume it’s R1000 000. If Peter passes away from natural causes (like a heart attack) in the first (3) years then the insured amount of R1000 000 doesn’t get paid out but Peter’s premium get paid back to him. After the (3) year period is up, it will convert to a traditional life insurance policy covering death as a result of natural and unnatural causes.
Scenario One – Peter Dies From Natural Causes Within The (3) Year Period
Let’s assume it’s exactly 24 months into the policy and Peter passes away. He suffers a heart attack on the golf course. He was paying R2500 per month for the R1 000 000 life cover. No pay-out of the lump sum benefit but a full refund of premiums paid back to his beneficiary. 24 months X R2 500pm = R60 000.
Scenario Two – Peter Dies From Unnatural Causes within The (3) Year Period
Let’s assume that on the way to work, Peter is involved in a car accident and passes away. Does his wife have a valid claim? Yes. Death was as a result of unnatural causes and the full benefit is payable – R1 000 000.
Scenario Three – Peter Doesn’t Pass Away Within the (3) Year Period
This is actually the best scenario because the Modified Death Benefit converts into a traditional life insurance policy and Peter is covered for both eventualities. Death as a result of natural and unnatural causes.
So what’s the catch?
There isn’t one except that the premiums for the Modified Death Benefit are pretty steep! That’s understandable though. The life insurer is taking on more risk than usual, so they need to cover that risk by charging more for the life cover than they usually would.
If you are having problems getting insured because of your health, the Modified Death Benefit is a great solution to your problem. Just try and stay alive for the first (3) years of the policy please!
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Until next time.
The InsuranceFundi Team