Notes:
Sometimes
funds (especially the large funds) may choose to partially re-insure
risk benefits, particularly the provision of catastrophe cover.
Generally, only the funds of larger employers are self-insured, as
the associated costs make it uneconomic when compared to the fees
charged by life insurers.
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WHAT
IS
THE MAXIMUM LEVEL OF GROUP LIFE INSURANCE WITHIN A FUND?
In
principle there is no maximum, but high levels of group life
insurance cover can become expensive. The maximum cover is limited
by what the insurance company is prepared to underwrite, on the
grounds of representing a reasonably acceptable moral hazard.
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DOES
GROUP LIFE INSURANCE AND DISABILITY BENEFITS HAVE TO BE INCLUDED IN
A PENSION OR PROVIDENT FUND?
No,
they do not have to be included, but it is sensible to have both
life and disability cover. Sometimes a separate unapproved group
life scheme might be better for tax reasons. (See section on Tax).
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CAN
THE GROUP LIFE INSURANCE BENEFIT IN A FUND BE USED AS PARTNERSHIP
ASSURANCE?
In
theory one could use group life insurance in a registered and
approved fund as a cheap form of partnership assurance, but in
practice, there will almost certainly be dependants which will
frustrate the objective, as the benefits will be approved in such an
instance.
Section
37C of the Pension Funds Act states that in the case where there are
dependants and nominees, the dependants will always receive a
proportion of the death benefit. This means that only in the case
where no dependants exist, will the nominee receive his full
nominated proportion of the death benefit. There are therefore no
guarantees that the partners (nominees) will receive any benefit.
Furthermore,
the benefit will be taxed upon death and the other partners will
receive less than was bargained for.
However,
an unapproved group life scheme can be used as partnership
insurance, because the provisions of the Pension Funds Act do not
apply, as such a scheme does not have to be registered with the
Financial Services Board or approved by the South African Revenue
Service.
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WHAT
IS THE MEDICAL FREE LIMIT?
The
medical free limit is the amount of cover granted by an insurer of a
scheme, or the scheme itself if self-insured, which contains risk
benefits, below which level medical examinations or other evidence
of health will not be required.
It
is very expensive to have all the members of a fund medically
examined, thus it is not financially worthwhile to examine everyone,
particularly those with low cover.
Within
any group of people there are those who are medically sound and
those who are not. An insurer or scheme will only wish to examine
those people with high death and disability cover. For a fund to
enjoy a medical free limit it must have a minimum number of members.
The
medical free limit can be amended at any time, however, once a
member's cover in terms of the medical free limit available is
granted, it cannot be taken away.
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WHEN
DOES COVER COMMENCE?
Cover
commences on the date that a member satisfies the eligibility
requirements for membership. If the member is unable to work due to
illness or injury on the day he satisfies the eligibility conditions
or during any of the 20 working days before such date, then cover
will only commence once he has completed 20 consecutive days of full
time work after the date he first satisfied the eligibility
conditions.
The
amount of cover will generally be the full cover in terms of the
rules, but subject to any maximum amounts that the insurer may
impose.
Where
a member's full cover exceeds the medical free limit, the member
must provide evidence of health in order to obtain the cover in
excess of the medical free limit.
The
member will receive full cover for a period of the earlier of 60
days from the commencement of cover date (to allow time to provide
the evidence of health) or until a decision on the provision of
cover is made.
If
a claim for benefits is lodged during the above period or within one
year of the commencement of cover, and the claim is as a result of a
pre-existing condition, the claim will only be paid on the basis of
the medical free limit (lump sum benefits) and no benefit will be
payable if the claim is in respect of the Income Plus Plan benefit.
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IS
A MEMBER COVERED IF HE ENTERS A SCHEME BETWEEN TWO ANNIVERSARY DATES?
Yes,
provided the rules of the fund permit entry at any time.
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WHAT
IS SPOUSE'S COVER?
Spouse's
cover is a separate, unapproved group life assurance scheme usually
running in conjunction with a retirement fund, where the spouse of
the member is covered for up to 2 x the member's annual salary in
respect of death or disability of the spouse. The member pays for
the cover generally by means of a salary sacrifice. There are
usually no medical examinations required.
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WHAT
IS A CONTINUATION OPTION?
A
continuation option is the ability to continue risk cover enjoyed at
standard rates and conditions in the scheme once a member has left
the fund, provided the member meets specific conditions.
Underwriters offer three different levels of the continuation option
-
In
the first one, a member is entitled to exercise the option on
leaving employment before normal retiring date, but not on
account of leaving due to ill-health and not taking early
retirement;
-
In
the second one, it is possible to exercise the option on leaving
employment up to and including normal retiring age. The
continuation option is not available on ill-health early
retirement;
-
The
final one is to include no continuation option at all.
A
continuation option has to be exercised within a specified period
after leaving the scheme and does not give the member a right to
continued scheme cover. Once the member leaves the scheme, his
scheme cover ceases until an individual policy in terms of the
continuation option is accepted by the insurer
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