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One can never underestimate the importance of having sufficient life insurance.
With more innovation, the industry has gone full circle and consumers are now buying straight life to provide a payment on death without the fancy frills of trying to build up an investment account.
The costs, including commission, and the inability of insurance companies to provide good investment returns, has resulted in this change.
It is always difficult to calculate exactly how much life cover one might need to ensure that families are able to maintain themselves in the event of death of the main breadwinner.
If you are using life insurance purely to cover a debt, the calculations are quite simple. But to provide for a family's future - education, inflation, major home renovations - all need to be taken into account.
It is at a time such as this that an amount insured for today and the resultant investment income from these funds, might only provide for a shorter period than the families actual requirements.
When doing your calculation on how much life cover you require, include the life cover you might already have as a member of your company provident or pension fund.
Though this could be taxable on your death (depending whether you are a member of an approved or nonapproved group life scheme), you will need to add the after tax portion of this cover to other cover you hold in your personal capacity.
Bear in mind that if you leave your company this cover will fall away - unless you take up the continuation option within 30 days of leaving offered by life assurance companies free of most medical requirements.
It is always better to be safe than sorry, and so it is better for one to be overinsured rather than underinsured. If you have calculated that you need, say, R1 million of life cover to provide income of R7000 a month for your family - then consider that in 10 years time your family will need R14 000 at a 7 percent inflation rate. Where will this amount come from?
One of the most important aspects of life assurance is the nomination of a beneficiary in the event of death.
If the nominated beneficiary is a spouse or dependants, then the policy pays out virtually immediately to the stipulated beneficiaries. But if the beneficiary is the estate, then it might take a considerable time in order for the money to find it's way to the dependants, as payment would first have to be made to the estate and this can only happen once letters of executorship have been lodged with the master and a bank account has been opened in the name of the estate.
During the time that this takes, unless other arrangements are in place, the family may struggle with day-to-day living expenses.
People need to take into account all eventualities and plan their life insurance while they still can.
lThe writer is a director of Pioneer Financial Planning. Visit www.pioneer.co.za or e-mail firstname.lastname@example.org