Getting married signals quite a few extra expenses, whether it be on the wedding party or furnishing a new home. Therefore, you may be looking to save on costs such as your insurance. One such way is bundling your insurance. But is this the best option?
Justmoney looks at bundling life insurance and how this affects both your premiums and your cover as a couple.
“To bundle life insurance means that both spouses are insured on a single policy. It is usually called a joint life insurance policy,” says BrightRock chief executive officer, Schalk Malan. According to him, it used to be a common practice. However, as times change, so do insurance product offerings.
“In the past there used to be a tax benefit attached to having a joint-life policy, but tax regulations have since changed and there is no longer such a benefit.”
Weighing up the pros and cons
The obvious benefits include having all your details saved under one “roof” which can save you time and effort when it comes to the administration and claims process.
Another benefit is having both of you covered under a single premium instead of paying two monthly premiums. Your partner can also choose to add you to his or her own life insurance policy so that if one of you pass on, you are both covered.
“Remember to check the exclusions that come with doing this as some insurers can only cover your partner within a certain time frame,” adds Malan.
But according to him, it’s never a good idea to have a joint life policy. The same can be achieved by two policies that may offer even better protection for both spouses.
“Money can be tight for newlyweds who are trying to build a home. In some scenarios bundling can help save newlyweds money, but it is possible that it could cost more. Bundling can come with the disadvantage of having insurance that doesn’t offer features that are vital for you. You could also end up paying more through bundling, when compared to mixing and matching various insurers,” says Craig Baker, chief executive officer of MiWayLife.
Malan adds that another noteworthy disadvantage is that if a couple decides to separate or divorce and you are insured on a single joint life policy, you can’t divide the policy.
“If one ex-partner decides not to pay his or her share of the premium, the policy will probably cease unless the other partner takes on the burden of paying the full amount. The partner who owns the policy can also decide to withhold policy pay-outs as well as change beneficiaries of the policy, without having the consent of their ex-partner. And as mentioned above, there are no tax benefits attached to these kinds of policies any longer.”
Another problem is that with bundled policies the policy holder will have an influence on the amount of cover the spouse can purchase, as the policy holder effectively has control of the bundled insurance, and insurers may not be inclined to allow the spouse to add more cover.
“Such an account might also not be too flexible as the bundled cover may need to have similar features. That’s why we would not recommend this structure,” Malan says.
Can bundling save you money?
Bundling does not save you as much money as consumers often expect. The only saving could be an insignificant saving on policy administration fees, says Malan.
Baker adds that this will also differ according to each insurer.
“Insurers that offer more than one type of insurance sometimes offer discounts to customers for choosing them to handle all of their policies. This could save couples anything between 10% – 30% on each premium. By bundling two or more policies an insurer could give you an incentive on discounting your insurance,” explains Baker.
How does bundling affect your cover or pay-out?
“Bundling your insurance will not lessen your cover, but it could affect your pay-out in some cases. If you are taking out a life insurance policy to the value of R1,5 million that is bundled with a R50,000 funeral cover, your funeral expenses can be deducted from the R1,5 million which means you will be paid a total of R1,450,000. Such factors need to be carefully considered when reading the exclusions, and terms and conditions that come with your policy,” says Baker.
However, this will depend on the insurer and the cover choices you make. It is best to get independent financial advice to understand the impact of choosing a joint life policy versus a single life policy per person.
According to Malan it is essential to make sure that you and your spouse get as much cover as possible for your premium. This means that value for money needs to be the focus, rather than just the premium or cover amount.
“Often, a cheaper premium could mean that your cover might not meet your needs later. A qualified financial adviser can help you understand the cost of your cover and what you will get for your money,” Malan says.
Remembering to update your insurance as and when things may change is imperative to the amount you pay.
This article was originally published on Justmoney on 05 June 2019. Click here to read the original online version.