The core benefit is the amount that is paid out. This either occurs on death or at the end of a fixed period, whichever is earlier. Investing in life assurance gives the assured peace of mind that his beneficiaries will have sufficient funds or income when he/she passes away or is permanently disabled. Life insurance mainly protects the assured’s family from financial ruin and loss. Depending on the product selected, there may also be a built-in wealth creation proposition in the policy.
The sum insured is payable to the beneficiary or beneficiaries upon the assured’s death or permanent disability. When the sum insured has been paid, the policy comes to an end.
Who should have life insurance?
You should consider getting life insurance if you have dependents who you support financially. This may be a spouse, children, aged parents or disabled family member. Maybe you are assisting with a family member’s tuition fees or have guaranteed a loan. If any of these are true, and you were to pass away unexpectedly, the people you financially support may find themselves in a financial difficulty. If you own any assets, such a house or farm, these might have to be sold in order to pay creditors and/or outstanding taxes. If you have taken out any mortgages, bonds or loans or have any hire-purchase or lease agreements, you need money to settle these.
But not only employed people should have life insurance. If you are a stay at home parent or spouse and cook, clean or care for your children, you are providing a certain lifestyle for your family. If you were to die suddenly, your family would need to make alternative arrangements in order to ensure that their lifestyle would remain the same. This might entail nursery school for toddlers, a nurse for the frail or disabled family member and/or a housekeeper.
Elderly and retired couples also need life assurance to protect the surviving spouse and ensure that funds are not exhausted by unforeseen medical or other expenses.
So in short, you should have life insurance if:
- You support someone financially
- You own property that you\’d like your dependants to keep
- You have any mortgages, loans, HP- or lease agreements
- Anyone depends on you for their well-being
How much cover is enough?
The insurance industry has a formula to calculate the amount of life insurance you need and you can simply go to almost any life insurance company’s website and use their calculator to find out how much life insurance you need.
Some insurance companies say that a basic starting point for life insurance cover is 6 to 10 times the annual salary amount. Another way to calculate your required cover is by taking the amount of your annual income (before tax) and multiply it with the number of years left until you retire. So if you earn R 600 000 a year and you plan to retire in 20 years, you are looking at about R 12 000 000 required by your family should you die today. But, this amount might not a true depiction of their actual future need and one has to take several other things into account, such as:
- rising cost of living
- tuition fees for children
- extra income from spouse
- number of years children will still be dependents
Regardless of how it is calculated, the life insurance cover should be enough to replace the income of the deceased. Or, in other words, the insured amount should be sufficient to replace the income gap and any extra expenses that might be incurred.
Leave a Reply