The explosive world of social media is driven by the need for social acceptance. The media allow a single individual to engage with a massive audience empowering them to be heard on a scale unimagined just a few years ago.

The need for social acceptance is amplified through the many social media platforms highlighting a basic need in all of us. 

We like to show off …..  

This, I believe, follows through your personal finance. A huge problem we face is that many of us need to be seen as successful and we demonstrate this through the things we buy. Cars, houses, clothing, holidays we take, etc… these purchases define us in our social circles and we place significant importance on them which impacts severely our financial independence in the future.

Wealth comes from compounding over time…                                                        

You see if you spend first and don’t pay attention to saving first then you take yourself out of the magic of compounding over time. This is the pathway to creating wealth which will liberate you from the payroll as you reach a stage whereby your future investments can provide your income.

Let’s start from the very beginning…

If there is one huge lesson in life that parents can teach their children it is to delay gratification. The ability to wait a little longer for things you want.

Not so long ago a bank made the point in an advertising campaign where they filmed some children with a sweet in front of them challenging them to leave it for a while to get a bonus sweet if they lasted. It was evident that each child went through a lot of pain to delay their gratification to get their reward. 

Today, as adults, are we any different? We find all sorts of reasons to purchase things in search of social acceptance. The evidence is found in the debt ratios of households which expounds into the debt ratios of countries. Did you know that the debt-to-GDP ratio of the US (the largest economy) is 100%? America owes what it produces…

It’s about priorities……

There’s no problem in buying nice things if you have your priorities in place. If you have paid yourself first in the form of savings for the future, are on top of your debt obligations in that you can comfortably afford them and have easy access to cash for emergencies then go ahead and spoil yourself.

However, if you overextend yourself to be seen to be successful then you incur the cost of social acceptance which robs you of financial independence in the future. 

From my previous blog creating awareness of exclusions clauses in your policies, the reality is:

It is about the business                                                                                                         The provider of your insurance has a business plan to keep it viable. The bottom line is that the premiums  (contributions received from all members of the scheme) need to be more than the claims paid out.

The provider of your insurance has a business plan to keep it viable. Premiums  (contributions received from all members of the scheme) need to be more than claims paid out.

So they will be very aware of the risk you present to them in terms of claiming as well as environmental risks which affect the pool of members. This is where certain standard exclusions are imposed. These create a blanket effect on their entire model and this reduces their risk significantly. Acts of god – earthquakes and floods for example.

Medical aids are at risk                                                                                                  With medical aids the regulations do not allow them to refuse you as a member, so you can join any scheme you want to at any age. However, regulations are also in place to allow the medical scheme to apply conditions to protect them from people joining only when they need to. For example, one could stay off medical aid until one need an operation. Join the scheme, have the op and then leave after the recovery. A huge bill would then be paid by the scheme with a very small contribution.

Medical aids, therefore, are entitled to exclude any pre-existing conditions when you apply for a period determined by the condition and the risk related to it. They are also allowed to apply a penalty or loading to your premium if you have not been a continuous member of another scheme. This loading allows them to recover premiums in anticipation of the risks of future claims. 

Life companies focus on your health and lifestyle risk                                                     Life assurance companies which offer life cover without medicals will also apply exclusions for certain pre-existing conditions. If you already have a life-threatening disease you bet the assurer has an exclusion clause in place safeguarding it from your pending claim. 

Be savvier with your policy

So understanding how insurance works will help you make more reasonable choices.

• You get what you pay for – cheap is not necessarily better
• Check to see what benefits are actually provided for
• Declare everything at application – rather overstate than leave things out
• Don’t hide anything – keep honest and transparent

It is better to be rejected on application and save all those premiums than start a policy and be rejected when you have a claim.

Your life assurance policy protects you in the event of death, disability and dreaded diseases. It is a cost-effective way of making provisions if you do not have the capital to provide for any of these life-changing events. However, T&Cs apply…

Why are exclusion clauses applied?

Exclusion clauses are normally legitimately included in life assurance policies to stop policyholders from making fraudulent claims, such as deliberately shooting themselves in the foot so they can receive a disability benefit. So they protect the financial well-being of the company as it relies on claims paid out to be covered by premiums collected.

Underwriting evaluates risk

Life Assurance Companies consider your lifestyle habits when underwriting your application. They essentially evaluate the risk that they are taking relative to the benefits being applied for. For example, a news correspondent in a war zone poses a much more serious risk to the assurer than a receptionist in a beauty salon..

The assurer will also consider habits such as smoking and drinking in conjunction with your medical history. 

Changes in your life may obligate you

Now, what you need to be aware of is the fine print in some policies which may obligate you to inform the assurer of any changes to your job or lifestyle habits. For example, if you take up sky diving or any other hazardous pursuits you should check with your assurer that you are covered. 

Pre-existing conditions 

Be very aware of policies which do not require any medicals. They probably exclude any pre-existing medical conditions. If you are not aware of this you may think you have cover which is not actually there.

The suicide clause

A common exclusion clause in the assurance industry is for suicide which most companies apply for a period of two years. However, be aware of the definitions in your policy as some exclusions clauses use wider terminology such as ‘self-inflicted injury’ which could have far more reaching interpretations to a claim.

Intentionally breaking the law

Another example is, say, you go out and drink too much, drive home too fast on worn tyres and are seriously injured in an accident. Your life assurance company may repudiate a disability claim on the contravention of an exclusion clause stating you may not intentionally break the law. Drinking and driving is a criminal offence and so is breaking the speed limit as well as driving a vehicle which is not road worthy.

Changing policies needs careful attention 

So be aware of the exclusion clauses imposed upon you in your policy. This also speaks to the importance of comparing the differences in definitions when changing policies. Older policies may have fewer restricting clauses than newer ones. The law leans in favour of the assurer at the end of the day so you need to understand the conditions of your cover as much as you can,