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Life industry to launch funeral insurance with added protection

22 November 2006 LOA


South Africa's estimated 17.5-million low income earners can look forward to greater protection when buying funeral insurance as from next year.

Funeral products with added protection will be made available as from February, following the recent approval of the pricing structure for funeral products by National Treasury and the Financial Sector Charter (FSC) Council.

The funeral product pricing structure forms part of the life industrys CAT (fair Charges, easy Access and decent Terms) product standards, approved late last year by the FSC Council. The pricing structure prescribes the maximum costs a life insurer may charge for funeral cover.

Gerhard Joubert, CEO of the Life Offices' Association (LOA), says in line with the capped pricing structure, R5000 cover for a member and a family under the ages of 55 will cost no more than R45 a month.

The product standards applicable to funeral products provide for the following:

* Accidental death cover must commence on receipt of the first premium- no waiting periods may be applied.

* Only a two year suicide exclusion will be allowed and a temporary natural causes exclusion of a maximum of six months. In the case of parent cover a 12 month natural causes exclusion may be applied.

* All payments must be made directly to beneficiaries, and not to undertakers.

* Premium rate differentiation may only be based on age.

* Premiums may not be increased as the policyholder grows older.

* The minimum cover may not be less than R5 000 for the principal member, and the maximum cover may not be more than R20 000.

* Maximum entry age for principal member and spouse may not be lower than 65. In the case of parent funeral cover the maximum age may not be lower than 75.

* Minimum entry age for the principal member may not be lower than 14 and not higher than 18.

* Monthly premiums must be set and no additional administration fee or levy may be added.

Joubert says the CAT standards were developed by the LOA following extensive research aimed at establishing the needs of low income households.

He says poor households face financial ruin every time a member of the families dies and therefore need the certainty that as long as they pay their premiums their claims will be paid quickly. CAT standard life insurance products therefore require no medical history or health declarations- an identity number, address and death certificate is enough to buy a policy and to submit a claim.

"The aim of the standards is therefore to encourage life insurers to design appropriate yet innovative and competitive products for the low income market."

Applicable to all CAT standard products are the following:

* Policies must be issued in English, but the summaries must be available in the dominant languages of each province.

* Low income earners must be able to buy a policy, pay the premium, or amend the policy at least once a month within 40 km of their residence or work.

* Low income earners must be given the opportunity to lodge a claim and receive payment of the claim at least every second working day within an 80 km radius of their residence or work.

* A share-call line must be available six days a week.

In order to avoid confusion, the life industrys CAT compliant products will not be launched under the Mzansi brand, but under a distinct brand developed by the LOA with the aim of supporting member offices' initiatives. This brand will be launched in February, together with the first compliant funeral insurance products.

Joubert says the aim of using one common brand is to help consumers recognize that products comply with the CAT standards and that they are aligned with the Financial Sector Charter requirements like physical accessibility, appropriateness, simplicity, affordability and no discrimination.

Joubert says now that the full set of CAT standards has been approved for funeral products by National Treasury and the FSC Council, life companies can use this pricing blueprint to start developing other products that are not only affordable, but also appropriate for the LSM 1-5 market. These will include credit life, mortgage protection, life cover as well as disability cover.

Currently about 12% of the LSM 1-5 market uses formal life insurance products (i.e. 2.1-million policies). The LOAs target is to increase this by 180% to 3.8-million policies in 2014.

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