The benefits of Life Insurance
The death of a family member is certainly one of the most harrowing life experiences and the associated burial expenses can be devastating to the poor. In a country with a high unemployment rate and 59 percent of the population living below the poverty line at M26.95 a day, death in Lesotho without an income or savings can be a nightmare for the next of kin. The grieving is expensive as it is customary for the family members to immediately move in with bereaved members as soon as they hear the sad news. Often, many come empty handed and expect to be fed. Not to mention their lack of transport money to travel back home many weeks after the burial.
The European way of burying the dead has also increased burial expenses for Basotho. In their pursuit to give their loved ones a decent burial, coffins and tombstones do not come cheap.
Otherwise, the modern way of mourning has brought with it life insurance, a system that insurance companies use to protect people from financial loss. The financial loss can be suffered when unexpected events occur such as death or if you become ill or injured and cannot perform your job.
Different insurance companies in Lesotho, like the rest of the world, offer insurance products that you can apply for that can assist in protecting you and your dependants from these financial losses.
Life insurance can give you a lump sum payment in the event of death (life cover); it can protect your ability to earn an income; it can make provision for adjustment to your lifestyle due to disability and; it can provide for your future needs such as an education for your children, a home or a holiday.
With the assistance of a financial advisor, you will find an appropriate insurance product identified after a financial needs analysis, which is a financial planning process that ensures that you buy appropriate products suitable to your needs and circumstances.
You should pay all the premiums on time and can be assured that the insurance company will pay the claim should an insured event occur. Many of us are worried that our families will not be able to survive financially if we die.
Say you take out a policy with CS Insurance Company to insure your life for M1 million. After a careful socio-economic rating, the company then
determines that you need to pay a premium of M800 monthly. Should you die, the insurance company will pay your beneficiary (usually your spouse or any other person you nominated to receive the proceeds) M1 million.
The socio-economic class is determined based amongst others on income and education, which are most important factors in determining the risk pool of the insured.
It then explains the question of how do insurance companies provide for all claims on policies in the future.
So in our example CS Insurance company will do an evaluation of your health and lifestyle called underwriting, which will determine if they are willing to take on the risk of insuring you. They will either accept or reject your policy.
Assuming that they accept you because you do not pose a loss to the company, they will pool your policy contract with all the risks they accept. Say you are 28 years old, play soccer on weekends, are very healthy and do not smoke. Your neighbour Ntate Josefa Lelimo (not his real name) is 52 years old, suffers from diabetes and is a chain smoker.
Both of you take out insurance policies with CS Insurance Company for M1 million. In your opinion, do you think you should both pay M800 for your policies? Who do think should pay more for his policy?
Obviously, Ntate Lelimo is older, he is unhealthy, and he smokes while you are younger and live a healthier lifestyle. Probably there are greater chances that something unfortunate will happen to Ntate Lelimo. So why should you pay the same amount for your policy as Ntate Lelimo?
Insurance companies have created risk pools. They pool all the clients that pose similar risks together and charge them similar prices for their insurance.
The main factors that insurance companies use within each risk pool include gender; where women are charged lower rates than men because women live longer. Smoker status: where non-smokers are charged lower rates because they live longer than smokers. Socio-economic class: where people with higher education and income, who live a healthier lifestyle and can afford better healthcare, pay less because they are seen as healthier clients.