Life cover is probably the most intangible of all insurance products. Most people find it difficult to accept and understand the advantage of paying for something that doesn’t offer any immediate benefit. But think about it for a second and consider the implications: What will happen if you die tomorrow? Who will pay your outstanding debts? Who will take care of your parents or your spouse and children – not just in the short term, but in the years to come? How will your family manage without your monthly income? If you have an active bond, will your family be able to keep the property, or will they end up without a roof over their heads in their time of bereavement? Will there be enough cash to cover expenses like the funeral, executor’s fees and estate duty?
If you have a mortgage, car debt, are responsible for young children or have a stake in a business, life cover can help ensure that your loved ones and/or dependants are not crippled by your financial obligations and that they can settle your debt and maintain their existing lifestyle, says Sonja du Toit from Sanlam.
Ask a financial adviser to draw up a comprehensive financial analysis. This will give you a good idea of how much cover you need and the most appropriate solutions, says Sonja. Depending on your own specific requirements and existing financial situation, one or more life cover solutions could be used to meet your total need. For example, you could use the life cover provided by an employer pension scheme, additional cover on a life policy and a funeral policy to meet the different aspects of your life cover needs.
A financial adviser can also help ensure that you fully understand the terms and benefits of whatever life cover solution you choose. “You and your adviser should ideally review your financial portfolio regularly to ensure that you have adequate cover to safeguard your family against financial ruin, should the worst happen. Your adviser will also be able to explain what executor’s fees and estate duty are and how it will affect your estate.”
Sonja says that the life cover amount you apply for should firstly cover your contribution to the household budget. This will help your family absorb the loss of your income when it comes to day-to-day living expenses. Making provision for any outstanding debt you may have, especially debt on any assets you own, can also safeguard your family from finding themselves destitute or drowning in debt. “If there is not enough cash in your estate to cover your remaining bond debt, your family runs the risk of losing the roof over their heads.”
You also have to consider your dependants’ current and future needs. If you have school-going children, you should factor their short- and long-term education needs into your financial planning. Education, especially on a tertiary level, is very expensive and normally increases at a faster pace than inflation year on year. This makes it difficult for families to afford university or college fees without some form of financial help.
Life cover may be considered a grudge purchase, but it is still one of the best ways to ensure that your family is taken care of when you are no longer there to do so yourself.