When considering how much is enough for life insurance, it should be less about what the policy holder can afford in terms of premiums, and more about ensuring the continuity of the lifestyle that has been provided for a family, after the passing of the main breadwinner.
This is according to Charl Olivier, Regional General Manager at MDS Gauteng West, who said that finding the correct balance between affordability and suitability can prove challenging.
Olivier said, "It is important to remember, in this respect, that a life insurance pay-out is used to cover a number of expenses. It must first be able to cover all once-off costs, such as debts and estate duty, before providing income for your family to maintain their standard of living".
Further to this, Olivier said that there are various important milestones that, when reached, will necessitate a review and possible readjustment of life cover requirements. “As you progress through life, your life cover requirements will change usually becoming more demanding as the number of people depending on your increases.”
These milestones, according to Olivier, include the highs and lows of life, as well as the moments we may not necessarily plan for, but could experience none-the-less. He goes on to unpack some of the most common of these milestones, providing tips on how each life event may impact your insurance requirements:
When starting your first job, the most important thing to protect is your greatest asset, which is your ability to earn an income. The best way to do this would be by taking out a simple income protection policy. At this stage in your life, a life cover policy may not be necessary if you do not have any dependents or debt.
Getting married is a fantastic milestone in anyone’s life and comes with much joy, but also a lot of responsibility. If you already have a policy in place, this is a crucial time to review it with your financial adviser. The three key products on a risk policy to consider during this period of your life would be income protection, critical illness and life cover.
Starting a family is often considered to be the milestone that will have the greatest impact on your insurance needs, as you are going to be fully responsible for the wellbeing of a child. If you already have life cover, ensure that the child is added to your policy, and reassess the amount provided for according to the amount of income that your family requires to maintain their standard of living.
A promotion often comes with a salary increase, which usually allows for a better lifestyle, but may also mean increased debt such as a nicer car or better home. It is therefore important that you ensure your cover stays relevant to protect you and your family against any unforeseen events.
Separation or divorce
While usually an unplanned milestone, in the event of a separation or divorce, a lot of people might not want their ex to benefit from their death. As long as you are the owner and life assured on your policy, you can contact your insurer who will then assist you with making the necessary beneficiary changes to your policy.
There are a lot of things to consider during this process, one of which are your children. You may want to consider keeping your life cover at a level that can comfortably cover your alimony costs or ensure that there is an income paid towards your children for future expenses such as secondary and tertiary education.
While nothing in life is certain and things don’t always go as planned, Olivier said that sound financial planning is key to realising life’s goals, and being free from worry.
"As the above points only touch on the top-level components of life cover, contact a financial adviser to ensure that you’re on track to making informed financial decisions through all the stages of your life," he concluded.