One of the questions that our clients ask the most relates to life insurance cover – how much should you have and can you afford it?
If you’re shopping around for life insurance at the moment or reviewing your policy, here is a quick guide that will help you insure yourself fully and affordably.
Why is life cover so important?
Unlike other insurances which cover items that you use or expect to use during the course of your life like your home, car, or valuables, life cover protects your family financially in the event of your death.
If you were to die tomorrow, your contribution to the household finances would disappear almost immediately. In this situation, your loved ones may be left in a financially vulnerable situation, battling to make ends meet and suffering a big drop in their standard of living. Life cover is a type of insurance that ensures a lump sum pay-out to your dependants in the event of your death.
How much cover do I need?
The answer to this question depends on your income, the amount of debt you have, and how much you contribute to your household each month.
Since the goal of life insurance is to replace your income in the event of your death, the lump sum that your insurer pays out will need to produce enough income to match your last salary – or at least match the amount of money that you contribute to your household.
For example, if you earn R20 000 a month and your household expenses (including bond payments, car payments, insurance, utilities, and household costs) come to R15000 a month, your insurance policy will need to guarantee a pay-out of approximately R4 million in the event of your death.
This amount, invested in a low-risk type of investment like a savings or money-market account, will comfortably produce enough income to match your last salary.
Can I afford the premium?
If you’re concerned about the cost of life cover, speak to your financial advisor about the options that are available to you. By finding a life insurance policy that will provide you with enough cover without costing you a fortune each month, you’ll be able to balance peace of mind with affordability.