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Inflation refers to the rise in prices that makes everything, from food and transport to education, more expensive each year. If the sums assured on your policies don’t keep up with inflation, you and your loved ones might find that they no longer cover all the expenses you intended. Our checklist will help you determine whether your sums assured have kept up with inflation and explain how to increase your cover if necessary.
Why it is important that your sums assured keep up with inflation
You take out funeral and/or life cover, so your family has funds when they need them—for a beautiful send-off for a loved one, school fees for your children, and other essential expenses. However, life and funeral cover policies are often taken out and then forgotten until they are needed. If they are only used many years after purchase, they might no longer meet all your loved ones’ needs.
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Let’s look at an example of a policy taken out 5 years ago, with a sum assured of R600,000 by Ms Mokoena. She wanted the policy to cover the high school fees of R600,000 for her three children if she passed away. However, the school fees have increased in line with inflation since she took out the policy and will now cost R750,000. If Ms Mokoena hasn’t reviewed her policy to check that the sum assured is enough for her needs, and there is no automatic increase in cover, she could be underinsured by R150,000!
Don’t let this happen to you!
Check that your sums assured have kept up with inflation
Take a few moments to work through this checklist so you know if your sum assured is enough for your needs!
1. Access your 1Life Insurance policy schedule on the online policyholder services portal or WhatsApp service centre and make a note of your sum assured.
2. Review what you wanted your policy to cover.
- If it is a funeral policy, work out how much a funeral would cost for each member covered.
- For a life cover policy, list all the items you want the sum assured to cover, such as education costs, home loan repayments, and future living expenses for your family. Work out how much you would need for these in future years, taking inflation into account. For example, for school fees you can take the current fees and increase them by 5% each year. Then, use the 1Life Insurance Life insurance calculator to help you work out how much cover you need or chat to your financial adviser for a financial needs analysis to determine the appropriate cover amount.
3. Compare the sums assured on your policy(ies) to how much you now need to see if your cover is enough.
Top tip: Over the past 10 years, the average South African inflation rate has been around 5%. This serves as a good guideline for how much your sum assured should increase to keep up with rising costs.
Not enough cover? These are your options
You can, if you need to, increase your cover!
For funeral cover policies: you can request additional cover by contacting your financial adviser or a skilled 1Life Insurance consultant.
For life cover policies: You can use the Guaranteed Assurability benefit that allows you to increase your cover up to certain limits with no underwriting other than an HIV test, every third anniversary or when there is a major life change such as you get married or have a child. You can also speak to your financial adviser or a skilled 1Life Insurance consultant about increasing your cover at any other time.
When you increase your cover you will receive a quote for the additional amount, as well as any underwriting requirements for life cover policies.
How much does it cost to increase your cover?
This will depend on how much you increase your cover by, as well as the original premium amount and risk factors.
Increasing your cover amount may not increase your premium by as much as you may think. For example, increasing life cover from R1 000 000 to R2 000 000 will cost an extra R49 for a 25-year-old female at standard rates. Increasing the sum assured on a funeral policy from R40 000 to R50 000 will cost R3.23.
Your sum assured may already be keeping up with inflation
Your 1Life Insurance funeral and/or life cover policy may have been adjusted to keep up with inflation if your policy has an annual inflation aligned increase. If your policy has this option, which will be indicated on your policy schedule, your sum assured will increase in line with inflation each year. Your premium will also increase. 1Life Insurance will advise you ahead of time of the increase in cover and premium.
Review your sums assured at least once a year
Review your policies and the sums assured once a year to see if your cover is still enough for your needs, even if there is an inflation aligned increase. You can set a date for this, for example on your policy anniversary or at the start of the new year.
Annual reviews are quick and easy, and a good time to increase your cover if you need to. When you do this regularly, the premium increases will be manageable and not as much of a budget shock as they could be if you wait ten years for a review and find you are significantly underinsured!
Financial stability for you and your loved ones
Inflation affects the cost of living and reduces the value of your money over time. If the sums assured on your policies have not kept up with rising prices, your loved ones may face financial shortfalls when the time comes. However, with adequate cover, your loved ones will have the financial security and peace of mind when they need it the most.