How to choose the right life cover

Life cover can protect your family financially in the event of your death. Angelique Ruzicka provides tips on how to save on premiums and advice on the types of cover to suit your wallet.

When you buy something like a handbag, new car or CD that you can enjoy it feels right. But buying something like life cover can feel like a grudge purchase because you are paying premiums every month and not seeing any tangible benefit.

Is life insurance essential?

Life insurance companies will tell you that it is but it all depends on your lifestyle. If you are single and have no dependents there isn’t much sense in spending money on life cover, especially if you don’t have substantial liabilities such as a home loan. During this time you should focus more on investing money in savings and pensions.

However, if you have a lot of financial responsibilities and a family that depends on your income, it’s important to get life cover to ensure your dependent’s financial well-being in the event of your death. Death isn’t something you want to think about. But what would happen to your spouse or children should something happen to you? Could they live without your salary?

How much is enough?

How much life cover you need can be difficult to determine and many people underestimate the amount they require. Independent research conducted for the Association for Savings and Investment (ASISA) last year showed that the average South African income earner was underinsured by R600 000 in the event of death and by R900 000 in the event of disability.

Some people are underinsured because they only take their outstanding home loan into account and insure their lives for that amount. Lizl Budhram, advice manager of Old Mutual, says this is not enough: “You need to do a detailed analysis of what your liabilities are. Take a look at all your other loans. Make sure that the policy will cover your income needs of your spouse and children. Also think about your children’s current and future educational needs and the living expenses of your family and how that will all be affected without your income.”

Estimating the amount needed can be tricky so it’s best to ask a financial advisor to ensure your cover meets your family’s expenses and other obligations. Our guide on sorting out your finances can also kick start you in working out your obligations. However, if you have a comprehensive knowledge of your income and expenses you can do your own research and calculations. Go to Justmoney to compare prices and get the right life insurance quote for you.

Moneybags’ saving tips:

Life cover may be an essential financial product to protect your family in the event of your death. However, like any financial product there are ways to reduce the amount you pay every month and different types of cover to suit your needs.

1. Whole of life/permanent insurance covers you throughout your life time and is the most expensive type of life cover you can get. Look at your all your liabilities and expenses and determine whether you will need cover for your entire life.

2. Term cover is generally cheaper than permanent insurance because it only covers you over a specified period. For example: you may choose to cover yourself over the duration of your home loan.

3. Keep up an active and healthy lifestyle and you will pay less in premiums. Life companies generally make you undergo a medical check-up to determine your risk profile. So if you smoke, drink, are overweight and have high cholesterol they will consider you a high risk and will ramp up your premiums. If you can’t afford to spend lots of money on sport, take a look at our Health and Wellness section for tips on how to stay fit and healthy without blowing your budget.

4. If you really can’t afford life insurance or are paying through the nose in premiums due to the fact that you lead an unhealthy lifestyle you could opt to just take out accidental life insurance.  This type of insurance may also be suitable for those diagnosed with HIV. It will be less expensive than comprehensive life cover but you need to be aware that this policy will only pay out in the event of an accident. If you die from a health related issue it won’t pay out.

5. Don’t be afraid to compare prices. Get more than one quote from your broker or look at price comparison website Justmoney if you don’t want to consult one.

6. Don’t be afraid to negotiate. “Broker commission can be negotiated. It all depends on the amount of legwork they do for you,” adds Budhram.

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