What Is A Life Insurance ‘Loading’ And When Can It Be Removed?
You often hear salespeople in the life insurance industry harp on about getting life cover when you are young because you will never be more youthful and healthier than you are today. Doom and gloom scare tactics, right? It comes off as a bit of a marketing spiel, aimed at yanking on our super-sensitive fear lever. But is there any real merit in taking out life cover in your late twenties or early thirties? And if you delay your decision, is there a risk of a ‘loading’ and what does that mean?
Time marches on. That is an undeniable fact.
As we get older, we generally battle to stay in shape. Hands up if you are a good couple of kilos heavier that you were 5-years ago? No judgies, we are in the exact same boat.
It becomes far more difficult to drop the extra weight because it’s increasingly difficult to find the time to get some exercise in, with constant family and work demands. Couple that with bad eating habits and vices like smoking and drinking, and before you know it, you are in your mid forties looking like a guy or gal who ate the younger version of yourself.
The problem with all of this is that at some point you are going to need to consider taking out some life insurance (and let’s also include disability and critical illness cover). If you leave your decision until you are much older (let’s define that as your mid-forties to fifties) you might just find out one of two things you weren’t expecting:
- You are seriously ill and didn’t know about it. As a result, you don’t quality for life cover.
- You aren’t in great shape and the life insurer has applied a ‘health loading’.
- Let’s start with the health loading first.
- Life insurance companies use mortality tables to work out how long the average person will live for. Outside of your age, other factors that influence how long someone lives for include:
- How much they earn
- If they smoke
- Their qualification
- Their gender
A 40-year old male who doesn’t smoke, has a 3-year diploma and earns R20 000 per month could get R1 000 000 life cover from as little as R303 per month.
The reason why we have underlined the “could” bit in the sentence above is because this is only an indicative premium. To qualify for the cover, a set of medical questions or examinations will be set. If the life insurer deems you to be in good health and a fair risk for them to take on, they will grant you the life cover at normal rates (the rate quoted). If, however your test results indicate that you aren’t in great shape (maybe you have high cholesterol, you are obese, you have raised blood pressure etc etc) they can apply a health loading.
All that means is that for the same amount of cover, you are now going to pay more. If we use the example above, and the life insurer applied a 100% health loading, the R1 000 000 life cover would end up costing R606 instead of R303.
How long does the health loading stay in place for?
Not forever. That is the good news.
As soon as you can provide evidence that you have your health condition under control, you can forward new medicals to the life insurer for them to review.
Let’s assume for a second that you are seriously obese, and the life insurer applied the health loading because of your obesity. If you lost the weight and sent a new medical exam to them, they would need to review the health loading.
Smoking rates applied to life insurance premiums are nothing more than a health loading. If you can prove (normally a year) that you aren’t smoking anymore, by taking a cotinine blood test, the life insurer will have to remove the smoking loading and offer you standard rates.
You don’t want to leave taking your life cover out until you are in your late forties or fifties.
There is a good chance that you might be in perfect shape and get your cover at normal rates. There is also a chance that you might be unhealthy, and you aren’t even aware of it and when you need the cover the most, you will be penalized with a health loading, or even worse, not qualify for the cover at all.
Until next time.
The MoneyShop Team