Your most valuable asset is your ability to earn an income. Are you doing all you can to protect it at all stages of your life?
“When circumstances change, it is important to review your cover and to get in touch with your financial adviser to discuss how it will affect the cover you have and need,” says Gareth Friedlander, head of Research & Development at Discovery Life. “For example, to cover schooling and university fees for children or the cost of allowing your partner to retire comfortably after you are gone.”
Q: How do you attract young people? Assuming life cover is not front-of-mind for someone who has just started work, may still be paying off student loans and just scraping by with rent and car payments.
It’s important for everyone to educate young people on the value of insurance and financial planning from a young age. Insuring assets such as cars, laptops, cellphones and other valuables is something you do from a young age. However, by far your most valuable asset is your ability to earn an income now and in the future to provide for yourself. Why not make protecting your income a top priority too? Income protection and disability and severe illness cover all enable young and old to protect this most valuable asset.
Q: Can “get life cover as early as possible in your working life” really be applied as a general rule of thumb for everyone? Why or why not?
You don’t have to make decisions about life insurance on your own. When starting on your journey toward financial protection, consider speaking to someone who is a professional. An accredited financial adviser can conduct a detailed financial needs analysis and provide you with a comprehensive list of affordable options that can best meet your life insurance needs.
Life insurance is a necessity and a crucial component of a good financial plan whether you are young or old.
As a general rule, it is important for people who have any kind of debt or for anyone who has financial dependents to buy life cover.
Another important consideration for everyone who is employed, is to protect your income. It is advisable to start this protection while you are young with an expected high salary growth. Having income protection will safeguard you in case you are unable to work because of an injury or sickness.
Even if you’re young and single, life insurance is a necessity. Aside from having insurance to cover funeral costs, you might leave behind financial debt such as credit card, car or home loan payments. As an employed person, you would also need to protect your income, as mentioned. At a younger age, even a small amount of life cover will ease the financial burden that disability, illness or death could place on you or others.
Q: Life cover should be used to protect a client’s family against his or her sudden death and any financial hardship it may lead to. Ideally speaking, life cover should reduce once a person’s investment portfolio has grown and debt is paid off later in life. It then seems counter intuitive to tell a young, single person to get cover, even without debt, just because they are young. What are the main reasons a newly employed person should consider for getting life cover?
Investing and life insurance serve two different purposes. Investing aims to create or preserve wealth over the long term, while life insurance is a safety net against life’s unexpected events. You wouldn’t want to rely on your investment as a back-up for life insurance, disability or severe illness cover because withdrawing your investment at the wrong time (when the markets are not performing well) could significantly reduce the value you have accumulated. Life insurance is not time dependent – it’s there when you need it the most – be it tomorrow or 10 years from now.
Life insurance can protect you from the unexpected loss of an income. Many corporate companies provide life insurance, known as group cover. While group cover is very important and beneficial, always consider additional life insurance to adequately provide for, debts, income and other needs.
There are various types of insurance that are available, which include:
Life cover: This pays out a lump sum in the event of death.
Severe illness cover: This pays a lump sum to help with the financial impact of a severe illness.
Disability cover: This pays a lump sum to help you with the loss of income or to pay off debts when you become disabled. The lump-sum payment can also be used to make modifications to homes to accommodate your disability.
Income protection: This pays a monthly amount, usually a percentage of your salary, so that you can maintain your standard of living if you are unable to work. Insurance for education: Certain companies offer insurance that covers the cost of children’s education (in South Africa or overseas) if you die, become disabled or suffer a severe illness.
Starting life cover at a younger age can mean you qualify for a lower premium because you are typically at lower risk of death, disability or severe illness. Unexpected events or illness can happen at any time. As a younger person with insurance, you will have the cover when you may need it. However, if you wait to apply for life insurance later on in life, you are exposed to the risk that you may contract certain health conditions, which can mean your insurance premiums will become significantly more expensive or even worse, you may not be considered for cover at all.
Q: Assuming that the main motivation for early cover is for a person to be insured while they are young and healthy, what tips do you have for these clients to ensure that they sign up for cover that will change as their needs and life circumstances change?
Life insurance and income protection should always be based on your needs. Life insurance policies are typically very flexible and it is recommended that you meet with your financial adviser regularly to review and update your policy as you go through the various stages of your life. Whether you are getting married, buying a new home, starting a family or nearing retirement – your needs will change at each one of these stages. Your life insurance must always be able to meet these needs. You would typically consider the following factors:
- How much it would cost to settle any outstanding debt.
- Additional expenses that may arise if you contract a severe illness or become disabled.
- Your income protection benefit to cover your monthly expenses in case you cannot work because of injury or illness.
When circumstances change, it is important to review your cover and to get in touch with your financial adviser to discuss how it will affect the cover you have and need. For example, to cover schooling and university fees for children or the cost of allowing your partner to retire comfortably after you are gone.
Q An additional benefit of getting cover early on in life is that a client will have the cover in place for when they find a home they want to purchase and apply for a bond. What is the process involved with using existing life cover as security for the bond loan instead of using the cover (often more expensive) that is being offered by the chosen bank?
There are different types of policy cessions. Therefore, when it comes to ceding a policy to a third party as security for major debts such as buying a house, it’s important to get the right financial advice. The intention is to put up the policy proceeds only as security for any balance of debt. Your insurer and financial adviser will be able to give you the necessary information and advice.