Insurance / 2 January 2019, 3:00pm / Sinenhlanhla Nzama
Life stages play a role in assessing a person's insurance needs over time. Nevertheless, an individual's needs can vary considerably – even when at a similar life stage – and while some events can be planned for, others are unexpected. Insurance should cater for all such eventualities, which is possible if it is sufficiently personalised.
Life stages affect health
Personal insurance extends beyond life cover to include insurance against disability and severe illness. Either of these can leave one in need of extra funds, while also unable to work, with all the negative financial consequences that follow – so insurance against these possibilities is advisable.
The likelihood of such events occurring changes over the course of a life: during youth, for example, one is more likely to be disabled in an accident than to die of any natural cause. This implies a greater need for disability cover at younger ages to protect against loss of income and other expenses arising out of a disability.
Severe illnesses are also typically associated with life stage, becoming more or less likely at different ages: for example, breast cancer is a threat from early adulthood for women, whereas heart conditions become a bigger threat for men from their fifties.
These changing possibilities should be reflected in one's personal insurance portfolio.
Life stages typically affect financial priorities
Different life stages also bring changing financial priorities, which should be considered in assessing insurance needs. Many people overlook the effect of their personal balance sheet – i.e. their assets and liabilities – on their insurance needs. For example, young professionals often have liabilities (car payments, a home loan) that exceed their accumulated savings and investments. For them, insurance products should also protect against such large debts following death or disability. Mortgage protection cover, for example, pays the outstanding amount on a bond in such circumstances, protecting the family left behind against the possible loss of a home.
Later in life, one’s personal balance sheet usually improves as home loans are paid off and investments gain value. The insurance needs typically lessen further as children grow up and leave home. Ultimately the estate planning considerations come to the fore instead, along with the desire to preserve a legacy to pass on to the family.
These examples illustrate the need for flexible insurance solutions that adapt over a lifetime, to avoiding chopping and changing products, and reduce the risk of having inappropriate cover at any given time.
Even at the same stage of life, it shouldn’t be one-size-fits-all
While a life stage plays a role in determining one’s insurance needs, two people in a similar stage may nevertheless be in very different circumstances, and therefore different requirements: One young family may have one child, whereas another has three – or is responsible for supporting several extended family members. Two professionals may have a similar income, but if one has just signed surety on a business loan, he or she may need more coverage as a result. A truly personalised solution will take such factors into account.
Circumstances can change rapidly and unexpectedly, for example with the purchase of a new home, divorce or a health event. It’s crucial therefore that clients constantly update their cover to ensure it stays relevant and fit for purpose. Moreover, insurance solutions should be nimble and flexible enough to respond to such developments.
Seeing the big picture allows for personalised insurance
It’s clear that personalised insurance is not only about the product, but is a holistic view of a one’s needs given their life stage, prevailing circumstances and financial situation. Such a big picture view, with an adaptable product that seamlessly link with other financial products and services, enables a much better identification of needs and greater effectiveness in filling the gaps. Just as insurance is intended to be.
Knowledge remains the key to optimally insuring our lives, our finances and our families. Always be clear about where you are in life, with an insurer who gets the big picture and can structure your cover accordingly.
Sinenhlanhla Nzama is the Head Product Actuary at Investec Life.