Dying young usually means your heirs will need capital to provide for their immediate income and their future financial needs.
Wealthy people require life cover to reduce estate duty, but everyone else needs it to preserve their family's standard of living.
The first step is to prepare a budget that reflects the financial requirements of each working spouse. Couples do not like to talk about death, but it is far better than to find out there isn't enough money for the surviving spouse to survive comfortably after the premature death of a spouse.
Take the example of a comfortably-off family, where both are working and their combined income after tax is R600000 a year. The budget shows that if either dies, the family will require about three-quarters of their previous yearly income (R450000).
The family would need capital of R6,42million to provide this income at a return of 7percent after tax.
But they face another problem because they also need to take inflation into account.
Assuming an inflation rate of 5percent, the capital will run out after 18 years because the requirements in the second year will be greater than the interest earned.
For 20 years the amount of cover would have to be R7,4million and for 30 years R10,1million.
The figures show that many people might be under-insured and would leave their families with severe financial hardship.
The beneficiary nominated in the life policy contract must be the surviving spouse, otherwise the policy will attract estate duty on death. Effective methods can be used to minimise this tax after death, but that is another discussion.
Insurance for dread disease or severe illness, covers conditions such as cancer, stroke and heart disease. Determining how much you might need is much more subjective. One method is to calculate 36 months of expenses.
Disability benefits come in two categories. Income replacement cover provides a monthly income while you are temporarily or permanently disabled. This pays after a selected waiting period, such as one, three or six months, until you recover adequately or until the stipulated expiry of the policy. This type of cover is critical for the self-employed.
If you are not working, you are not earning.
You could also buy capital disability and impairment benefits. These provide you with a lump sum payment, but generally only cover permanent disability.
When you buy disability insurance you need to understand that you are buying cover only for your own occupation, similar occupations or any occupation.
Big differences apply in the conditions to each. The premium as well as the payout will be affected by your choice.