Should I have/take Stand-alone or Accelerated Benefits?
This is a question I get asked from A LOT of people.
First, lets explore what they are.
Stand-alone Benefits are risk benefits (Disability, Critical Illness Cover, Accidental Death) that are not attached to your Life Cover policy and therefore will not accelerate or reduce your Life Cover amount, should you claim. Stand-alone products are generally more expensive…
Accelerated Benefits are risk benefits that are attached to your Life Cover policy. Should you claim, the amount you claim will reduce your Life Cover amount. These products are generally less expensive.
Lets look a practical example;
John has R1m Life Cover, R1m Stand-alone Critical Illness Cover, R1m Disability Cover and R45000 worth of Income Protection.
Unfortunately, John recently contracted Colon Cancer and its stage four. Fortunately, John has R1m Critical Illness Cover which pays him to pay for his own medical expenses in addition to medical aid and he gets the best treatment. His Life Cover amount of R1m remains untouched and should John die, his wife and child, will get some money as a gift to be able to bear financially for a short while without him. The costs associated with dying such as Estate Duty, Capital Gains Tax, Executors fees, Transfer Duty, Master Fees and Funeral Costs will be covered because his Life Cover of R1m was unaffected by his Critical Illness claim.
Now if John had Accelerated benefits, the story wouldn’t end as well as it did. John had a claim for R1m Critical Illness Cover and because his benefit was accelerated it REDUCED his Life Cover amount to..Yes, you guessed it...NOTHING. Now John has no Life Cover and his wife and child get no money from the Life Cover and the R1m that was meant to pay his wife and child is no more. If John doesn’t have other money to pay the costs of death (when he should die) then SARS will have to dispose some of his assets to cover these costs.
Now that we know what they are, which one should you have?
The answer is;
IT DEPENDS ON WHAT THE COVER IS FOR!
If you are taking out a home loan policy, then accelerated benefits may be a good option because these benefits are solely for the purpose of settling debt on death or critical illness or disability.
Moral of the story is…Consult your financial advisor!
DISCLAIMER: The opinions expressed in this post are for general information purposes only. They are not intended to provide financial advice or recommendations for any individual. It is only intended to provide education about finance.
