Open letter to South Africa’s students‚ universities and government‚ represented by Minister in the .
Life assurance is one of the most overlooked aspects of financial planning. Its importance tends to diminish as people build up their wealth. Many high nett worth people reach the threshold where they no longer need life cover to provide funds for the family. But adequate life cover ensures continued maintenance of life and living standards, and also covers any debt owing at the time of the death of the insured.
As we all breathe a sigh of relief at falling interest rates, how many have considered that they now need to look at increasing their life cover simply because the payout to the beneficiaries will not accumulate as much interest, or as high a return as when the interest rates were so much higher? What about the increased costs of living, especially education? The amount of cover needs to provide for high inflation. And because of the economic global downturn, asset values are now so much lower. So, do you still feel confident that your life assurance is adequate?
There are many new advancements and additional benefits that have enhanced life cover and nowadays it is available for those living with Aids or diabetes, or other chronic diseases.
No one has any idea of the sequence of events that fate holds for them. One may suffer no illnesses at all and then die peacefully in one's sleep at a ripe old age, leaving no financial dependents. Unfortunately, one could instead contract an illness, be injured in a motor vehicle accident or die of a heart attack at a young age.
Many policyholders may not be aware that where they have dread-disease cover attached to a life policy, that on payment for a dreaded illness, the life cover will reduce by the amount of the claim. This means that should one die some years later, only the balance of the cover will be paid out. For this reason, it may be important to have stand-alone benefits so that your cover is not affected. Furthermore, once you have had a critical illness, the chance of getting life cover again is remote, if not impossible.
Before considering changing to a new style life cover product, you need to review your current insurance, taking into consideration:
l Life-cover costs;
l Escalations - how much is going to life insurance;
l Surrender values; and
l Lower premiums.
Before cancelling an existing life cover policy, ensure that you have been accepted for the new one. The last thing you want is to find that there is a problem being accepted onto a new policy and you have already cancelled the old one.
Spouses should sit down together and evaluate how much cover is required. Too many people are left without a spouse and with young children who need caring for. I ask, where will the money come from?
l Bryan Hirsch is a director of Pioneer Financial Planning. Visit www.pioneer.co.za