Reassess your risk life cover regularly

2016-06-02 06:00

WHEN did you last assess how much life assurance risk cover you need for such things as early death or being unable to work because of severe disability; or even whether the life assurance cover structure you have actually meets your needs?

The chances are, if you do not have your risk life assurance cover revised on a regular basis, that your cover is outmoded, incorrectly priced and simply does not meet your needs.

The reason is that risk life assurance has changed significantly over the past 50 years and is still changing dramatically – but not every change may have been in your best interests.

To get the best value for money you need to keep a constant watch on two main issues, namely:

* Cost - There is lively competition between life assurance companies, increasingly on price, but be warned: cheap is not necessarily in your best interests.

Taking the cheapest premium when you are young is not always the best and can be dangerous for your long-term financial security.

* Changing needs - Risk assurance should be based on your long-term changing needs.

For example, when you are young with dependants, your main need will be to support your family in case something happens to you. When you are older and richer you may need life assurance to cover estate duty and capital gains tax when you die.

It is not a matter of assessing your needs once and then simply escalating the amount in line with inflation.

Depending on your needs, you may have too little life assurance when you are younger and too much when you are older.

Most South Africans are woefully under-assured

This year an estimated 185 000 South African income earners will die and an estimated 63 000 earners will suffer total and permanent disability.

As sad is the fact that most will have dependants who will not be able to maintain their current living standards.

The reason is that very few will have had life risk assurance, or sufficient assurance.

A few years ago a major study undertaken by True South Actuaries and Consultants on behalf of the industry association, the Association for Savings & Investment SA (Asisa), found that South Africa’s 12.4 million income earners between the ages of 16 and 65 are woefully under-assured – by about R18 trillion – against death or a calamity that would leave them unable to work.

Most South African families would be forced to cut their monthly spending by about a third on the death or disability of a breadwinner.

The researchers found the only people who come anywhere near being fully insured against death are higher-income earners over the age of 55 who have saved enough and who have group life assurance attached to a retirement fund. On the disability side, however, this group is also under-assured.

Single people are most likely to be over-insured and top earners and breadwinners with a tertiary education are more likely to have life assurance.

The people who are most exposed to potential financial disaster, particularly if they were to become disabled, are those under the age of 30.

The research found that the average South African income earner is under-assured by 62 percent for death and 60 percent for disability; or by R750 000 in the event of death and by R1.2 million in the event of disability.

So, if you are Mr or Ms Average and the main breadwinner in your family dies or is disabled today, you will either have to cut your living expenses by between 30 and 34 percent, on average, or earn more – an extra R4 002 a month if the breadwinner dies or an extra R5 752 a month if the breadwinner is disabled and unable to work.

Parts of this article, is an excerpt from Business/ Personal Finance by Bruce Cameron August 2012 edition.

Disclaimer

The information is only intended to be of a general nature and should not be relied upon by any part without obtaining full details from a licenced financial service provider.

You could also contact me on 083 399 3905, my office on 032-944 3051 or e-mail me on juggieg@telkomsa.net for an appointment to discuss the above or any other financial planning.

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