Life Insurance: Who really benefits?

by / Friday, 04 October 2019 / Published in Long term Insurance

We live in a fast paced world with instant gratification and can so easily lose the ability to look at what the future may hold.

Taking out a policy and placing your hard earned money into the uncertainties of life may feel like a “grudge payment”. However, we as professionals have “been around the block” and experienced the joy and the value it had for our clients who needed to claim and were able to settle those imminent needs, making it worth it in the end.

So why do you actually need long-term insurance and what is it exactly for?

A Life Insurance Policy(long-term insurance) may consist out of the following:

 Life Cover:

A death benefit on a policy will pay out a lump sum that you have insured your life for. The insured value will be calculated by looking at the amount of debt that needs to be settled at death for example a home loan or credit card debt. It can also be used to ensure cash in your estate to settle executor fees and estate duty(tax). It is also an easy way to leave cash to your beneficiaries that might need it to live from after your death. It is very important to do the proper planning with your advisor to ensure that there is enough coverage for these potential expenses and settlements.

Critical/Severe Illness:

This benefit pays out a lump sum that you have elected for that will pay out according to severity levels in the event of cancers, cardiovascular diseases and a document full of severe conditions. According to Discovery around 40% all Severe Illness claims are as a result of Cancer and affects literally all ages. In most cases an individual’s Medical Aid may not cover all the expensive and extensive treatment involved with these serious conditions and this type of cover becomes essential.

Disability:

Disability benefits also pay out a lump sum but in the event of partial and/or full disability. It can be anything from losing a limb in a car accident to losing function in the hand that you use to operate on a patient. These pay-outs are usually used for medical bills or for the expenses of a life changing event like having to buy a wheelchair and having to change the layout of your house to suit the wheelchair. These lump sum pay-outs may make your life significantly easier.

Income Protection:

With the Income Protection benefits you insure your monthly nett of tax salary. This benefit pays out in the event of temporary and/or permanent disability. These monthly income payments are assessed by the loss of income, severity of the event and the cost implications to you. These monthly income payments on a permanent life event will normally be paid up to age 65 and depending on the benefits chosen, can increase annually just as your normal salary would have.

 When does it become important and at what time in your life?

As an individual ages you go through different life stages. Usually between 21 and 30 you will be buying your first car and will be starting to settle in to your career. At this stage Income Protection is vital as you have not yet built up enough assets that will provide income for the rest of your life. If you become permanently disabled, you would probably need financial assistance from family, where an Income Protector would provide your insured salary until you retire.

Between 31 and 45 you accumulate assets and debt. Disability and life cover would then start becoming more important than before. You would also have started a family or have kids in school and will have to leave something cash for their well-being.

From 45 upwards your debt should become settled and you will start decreasing life cover accordingly. What will become very important is Severe/Critical Illness cover as the largest percentage of claims come from this age band. Costs involved with these illnesses are extremely high and the average medical aid will only cover up to certain limits.

 

Be sure to regularly update your policies and keep your advisor up to date on any life events that may have an effect on the type and extent of cover you need.

 

Ruvan J Grobler

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