Do you have the right insurance at the right time?
As time passes, your life changes and your insurance cover must reflect the new developments.
Henk Meintjes, Chief Specialist of Risk Propositions at Liberty, discusses the eight points in your life when you need to review your risk cover.
Most people have their first experience of risk insurance when they start working. The company may provide some form of life or disability insurance. Along the way, you may end up with additional life insurance to cover your mortgage when you buy a house. What many people seldom do, however, is a full review of their insurance needs, especially when experiencing significant life changes or reaching certain milestones.
Perhaps you were fortunate enough to meet with a financial adviser and sign up for basic insurance. But did you know that you should be meeting with your financial adviser once a year to review your overall finances, including your risk cover?
8 Possible insurance risks for every stage of your life
1. You start working
Make sure you have the right risk cover to protect your future income. At this point, it’s your most important asset. This includes insurance that pays a lump sum if you are disabled or impaired or that pays recurring amounts to replace your salary. If you don’t have dependents, you may not require significant life cover, but consider selecting an option that allows you to increase your life cover at a later stage without underwriting.
If your company does not provide a pension or provident fund, make sure you start investing in a retirement annuity. Even if you are contributing to a company fund, remember that you can invest up to 27,5% of your income tax-free for retirement.
2. You change jobs or are promoted
Rather than spending all your extra cash, increase your monthly savings by the same percentage your salary increases by. This will ensure that you’re on track for retirement. If you start working for a new company, review their employee benefits to find out if you are in a better or a worse position.
It’s important to review any disability and income protection to ensure that it’s in line with your new income. If you don’t already have critical illness cover, consider the fact that critical illness claims are increasing for people over the age of 30.
3. You lose your job (worst-case scenario)
Understand your options. You may need to draw from your pension, which will impact your retirement. Find out if any of your policies include retrenchment cover – either as a stand-alone benefit, which will pay you a monthly amount, or to waive your insurance or investment premiums.
Avoid the knee-jerk reaction of cancelling your risk cover. This would leave you extremely vulnerable financially should something happen to you. In addition, you may not be able to get cover at the same premium again after you have cancelled your cover, particularly if your health status has changed.
4. You get married
Now is an important time to review your life and disability cover. If you and your spouse plan on purchasing property together you need to ensure that you both have risk cover in case one of you is unable to contribute to the mortgage due to death, disability or ill health.
This is also a good time to sit down and discuss your financial priorities. You need to agree on what you both hope to achieve over the next five, 10 and 20 years. Remember to update your will and the beneficiary details on all your insurance policies to include your spouse.
5. You have children
Reassess your cover to provide for your children, and particularly for their education. It may also be advisable to include a testamentary trust. Should you pass away, the proceeds of your policies or assets can be paid into the trust until your children become adults. You also need to update your policies, your pension and your provident fund beneficiary nomination forms accordingly.
Now is the time to start a savings plan for your children’s education.
6. One of the breadwinners stops working to raise children
This will change your family budget and lifestyle. When reviewing your finances, ensure that the stay-at-home parent has retirement provisions, as well as risk cover. Although the parent may not be earning an income, they are the primary caregiver, and this would become a cost to the family if the parent was no longer able to care for the children.
7. You get divorced
Update the beneficiaries of your policies if you no longer want your ex-spouse to be named as a beneficiary.
If you were covered on your spouse’s insurance policies, you’ll need to apply for your own separate policies. Remember to consider medical aid and short-term cover.
Assess the impact the divorce has had on your income and assets. If you receive a lump sum from your ex-spouse’s retirement fund, make sure you preserve the benefits because you will still be retiring one day.
8. You retire
It’s important to undergo a full financial assessment and have a proper plan in place for retirement. A full review of your risk insurance is important as your needs will change significantly. If, for example, you had income protection, you could use those premiums to increase critical illness cover. Assess how much life cover you still require. If your children are no longer financial dependants, the need for cover may be reduced, but you still have to consider factors such as spousal support and estate duty.