BUSINESS NEWS - Life insurance is often the last thing that people think of when it comes to their financial well-being. Most would never buy it if they didn’t have a broker trying to sell it to them.
This is unfortunate because the result is that many people don’t understand why they need it.
“Most people don’t wake up in the morning and think that they need some life insurance,” says Michael Goemans, the CEO of Investec Life. “But everyone should be concerned about something happening to them that would affect their families or their lifestyle. If you can’t work you can’t earn an income, but you or the dependants you leave behind still need to live.”
Essentially life insurance, disability cover and serious illness cover are about protecting you and your family in the event that you can no longer earn an income or incur a major life impact, whether temporarily or permanently. Everyone should think about how they would manage if that were to happen.
“Our view is quite simple,” says Robin Gibson, a financial planner at Harvard House. “Individuals sell their skills and time in return for an income. This income meets their consumption needs, some of which funds debt. Life cover should do nothing more than settle debt and provide the difference between your current accumulated capital and the capital sum required to purchase a sustainable, escalating income for the family’s future needs.”
This is critical for everyone to understand. Life cover serves a very particular purpose, and it’s therefore vital to know what you should, or shouldn’t do when it comes to taking out a policy.
Know how much you need
“You shouldn’t buy cover you don’t need,” says Rudi Schmidt, the MD for short-term insurance and life at Alexander Forbes. “Think cautiously because it costs you money. Buy the cover you actually need and spend time determining what that figure should be.”
The question, of course, is how to know what is enough. Fortunately, there are many online tools that help to answer this question, and your financial advisor should also be clear on how they reach the figure that they are proposing.
“Typically, you look at what you are covering,” says Goemans. “This often doesn’t have to be an overly complex calculation, and the products that meet this need also don’t have to be as confusing as has traditionally been the case.”
For death and disability cover, this generally means paying off your debt and having enough cover to generate an ongoing income.
“Severe illness cover is however often a more subjective assessment of what you want extra money for,” says Goemans. “Maybe your medical aid won’t pay everything, or perhaps you will need to change your lifestyle, or take time off. You have to weigh up these needs based on some objective calculations, but also your individual risk appetite and affordability.”
