You know you need it, you don’t always want to pay for it, but without it, your family’s future could be up in the air. So why do you need life insurance?
The simple answer is to settle debt.
Besides this though, there are also other less obvious reasons why you need to cover yourself today. You might not be saddled with any debt currently, in which case you could be forgiven for thinking that only people with bills, up to their eyeballs, need life cover. That’s simply not the case. We’ve come up with 4 not so obvious reasons why taking out a life insurance policy as soon as possible still makes sense.
Killing off your debt (the obvious reason)
If you pass away, you want to make sure major debts, like your home loan, are settled. The last thing you want to do is leave your spouse with the burden of debt repayments, especially with one less income coming in each month.
So how much life cover do you need to settle your debt?
It’s an easy exercise – tally up all your major debts, like your bond and vehicle finance (if it isn’t already covered in your finance agreement) and any personal loans.
Now onto the not so obvious reasons why you shouldn’t delay taking out life cover:
1. Providing an income for those who depend on you financially
Without your income, will your spouse be able to cover all the household expenses? Granted the bond and vehicle repayments may have fallen away (because the debt was settled with the life cover pay-out), but what about school fees, rates and taxes, fuel and groceries?
Also consider extended family members who are also reliant on your income. Do you have parents, parents-in-law and possibly grandparents who depend on you for financial support?
You would be putting them in a precarious position if suddenly the monthly cheques, they are used to receiving, simply stopped clearing.
Having a large lump sum of life insurance would take care of the immediate need for income to cover your commitments. When the life insurance policy pays out, your beneficiary can invest the money and pull an income from it to cover the lost income.
A quick example:
If you invest R1,000 000 into a local money market account, you would earn roughly 7% per year. If you take that R70,000 in annual interest earnings, and draw it down into a monthly income, it would provide you with R5,833 per month (before tax).
If you need R10,000 per month to replace your lost income, you need roughly R2,000 000 invested in a money market account, so you’d need to take out at least R2,000 000 life cover.
2. The cost of winding up your Estate
When you pass away, there are another set of costs you probably aren’t aware of: the costs of winding up your estate (all the money and property owned by a particular person, at death). Three additional costs could crop up with this, and you need to make sure you have made a provision for them:
- Capital gains tax
- Executor’s fees
- Estate duty
3. Making sure your kids schooling is sorted
A good education is an investment, and nowadays that investment can run into millions of Rands per child. Have you made a provision for the cost of schooling, ten years down the line, if you pass away? A recent article on the cost of education in South Africa indicated that it costs approximately R2,2 million to put a child through private schooling nowadays (creche through to tertiary education).
That is a staggering amount of money?
Based on the rate of education inflation in South Africa, parents of a child born in 2017 would have to cough up a staggering R600,000 in the final year of private schooling.
Having enough life cover in place to cover the cost of current (and future) schooling costs makes a lot of sense, if you are looking at giving your child the best possible education and a shot at making it in a super competitive job market.
4. It’s going to cost you more down the line & your health might not hold up
You might be young and healthy right now, and the idea of taking out life cover is on your mind about as often as your retirement planning goals.
We get that.
But you might be interested to know that the older you get, the more you pay for your life cover. What’s even more important is your health. You may not have any issues at the moment, but you don’t have a crystal ball and you can’t tell the future. An unexpected health crisis could be around the corner and then being able to qualify for life cover might be an issue.
If you are young and you can afford it, take out some life cover, while it’s cheap and you can fully qualify for it.
At Stangen we believe in responsible products for responsible people.
- Get up to R10 million life cover with us
- No medical examinations are required
- There are no waiting periods
Need a quote? Click here
Until next time.
The Wise About Life team