How much Life Cover do I need?
Determining the appropriate amount of life cover requires careful consideration of various factors. A financial planner assesses your individual needs and goals to provide personalized guidance.
Factors to Consider:
1. Dependents
Children, partners or other loved ones who rely on you financially either require or would benefit from life insurance. You should consider the financial impact on them should something happen to you.
2. Debt
Who would cover your mortgage, credit card and loans that you have. Sadly debt is huge cause of family destress. Thankfully in most cases you can only qualify for large loans if you can prove you have the necessary life cover in place. Quick note here you should also get multiple quotes for life cover when applying for loans. You may not be aware but you can often get better rates than the provider offering you the loan this is also true for car insurance.
Calculating Your Needs:
It’s essential to conduct thorough calculations to determine your life cover requirements accurately. This involves subtracting existing assets from total financial obligations to arrive at the necessary coverage amount.
Existing assets like property, investments and savings could be used to provide the needed income and capital. With proper planning, you can determine then which assets you will use for income and which assets will be used to settle debt.
Using property like your house or business to settle debt is risky as you cannot always sell property easily. It is better to settle debts and short-term needs with cash which can come from a life cover policy or implement a buy and sell agreement for the shares of your business.
Getting life cover is not a simple yes or no over-the-phone conversation and anyone that says it is quick and cheap may be hiding behind fine print at claims stage.
It is important to do the correct calculations to determine your needs and then even more important to get comparative quotes from numerous providers to find the best premium for you.
2 Real-Life Examples:
Consider Simphiwe, a 25-year-old intern, who needs cover for funeral expenses and outstanding debts. In contrast, Ben, a married father with dependents, requires cover for family expenses and education needs. Their unique situations highlight the importance of assessing individual needs for adequate cover.
Simphiwe
Ben
Age
25
45
Qualification
4 year degree
Diploma
Dependents
None
Wife, 2 children and parents
Occupation
Intern
Business Owner
Ben is currently an intern and as such would likely ask the following questions:
- Who would pay for my funeral expenses if I had to die unexpectedly?
- Who would repay my student loan, credit card and car repayments?
After a chat with Ben he may only need about R 400 000 life cover to settle his debts and cover his funeral costs.
Looking at Bongani. He is married with 2 children and his parents are financially dependent on him. His questions are more along the lines of:
- Who would take care of my family’s month-to-month expenses when I die?
- Who would take care of my children’s education when I die?
- Who can afford the bond we have once I die?
After meeting with Bongani and considering his needs he would need about
R8 000 000 life cover to ensure that his family is well taken care of when he dies.
We can see from the 2 examples that your situation and goals have a big impact on your possible life cover needs. These factors play a role in determining how much cover you will need. We all have unique life situations and this is why we cannot apply a simple formula or one size fits all approach to answer the question how much life cover do I need?
- Will it cover my outstanding debts?
- Will it cover the children’s education fees (current and future schooling)?
- Will it be enough to sustain your family and replace the income that you earn?
- Will it pay for my funeral expenses?
Finding out how much Life Cover you need is about looking at the full picture of your financial life and future financial plans. During this process, you need to factor in your dependents, debt, taxes, other assets and other potential future expenses. It is important and it is a big deal. It is not impossibly complicated but it is something that is challenging to think about.
As soon as you have any debts or dependents life cover becomes essential.
As independent risk experts we can help you understand your unique needs, assess appropriate cover, and navigate the complexities of insurance products. Together, we can create a tailored risk plan that ensures your peace of mind and long-term financial well-being.
The information provided is not intended to address the specific circumstances of an individual and is for information purposes. Should you require financial advice please contact us.
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