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.
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.
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. 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. 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.
Your level of group risk cover will vary with every employer, so I always look at group risk cover as supplementary. You should never make it your core or fundamental cover in financial planning because it is not sustainable and varies through your life.
Also, group cover policies can take up to a year to pay out because the fund has to identify the right beneficiaries. Direct life insurance will pay out in a week or two if beneficiaries are nominated and not disputed.
Don’t buy non-underwritten products if you don’t have to - There are plenty of funeral and accidental death cover policies available the market themselves on not requiring any medical examination. However, what many people don’t realize is that this kind of cover is far more expensive than taking out a traditional life insurance policy.
A lot of people are scared to go for medical tests for fear of finding out that they have an underlying ailment like HIV. But for these non-underwritten policies, the premium for the same level of cover quadruples. The only time you should do this is if you cannot get underwritten cover.
Gone are the days when the company you are engaging with should be able to dictate what you do and how you interact. They shouldn’t force you to buy products you don’t need, or to use a channel or avenue that you don’t want to use.
If you want to be able to do things on your own terms, you should be able to get that. It’s a new world, and as a client you should be able to determine how you want to do things.
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