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One of my pet peeves (and something I see far too often) is seeing over-inflated insurance portfolios with no reason for it and no understanding of why there is so much cover in the first place.
Sadly, there are some professions that get a jaded perception because they are dominantly sales commission based. As brokers and financial advisors rely solely on commission, you aren’t always sure that it is your best interest foremost in their minds? Add into this the fact that if a policy is cancelled within a certain time frame of being implemented, some (or all) of that broker’s commission is ‘clawed back’. The result could only be a situation where there are some brokers or advisors that, out of desperation, make poor calls.
So how do you, the client, know if you are over insured or not? There are some yardsticks that will help you understand what the basics of cover should include.
Life cover in a personal policy is there to cover outstanding debts (bond, loans, etc.), family responsibilities (medical aid, school fees, etc.), ‘death’ costs (executor fees, estate duties, etc.) and any additional predetermined funds for one’s family. This can be quantifiable and calculated correctly.
You should always strive to protect as much of your income as possible as in most cases this is one’s most valuable ‘asset’. Your income is what pays for your retirement savings, your living costs, and so much more, and therefore insuring it is so important. The industry norm is 75% of your net of tax income, but some companies offer more cover.
The amount of cover here is up to you. If you have a strong family history of a life-threatening disease, you may opt for more cover, but due to the high cost of medical procedures and treatments, sometimes well above what the medical aids cover, this should never be overlooked.
It is never advisable to link (accelerate) one’s disease cover to your life cover unless there is a ‘reset’ benefit such as with Discovery’s Minimum Protected Fund and even then, it MUST be correctly structured.
DISABILITY LUMP SUM
This benefit is there to cover those debts you’d like to settle in the event of a permanent incapacity such as your bond, etc. but it would also be needed to modify one’s lifestyle in line with the condition. It would be used to cover such elements as wheelchairs, special access, changes to your bathrooms, etc.
I always advise that a person take their financial planning seriously. Know WHAT you have, HOW MUCH cover you have and WHY is the difference between being safe or at risk. Go and have a look at your policies. If something smells off or you’d like to make sure all is as it should be, get it checked out, and don’t be afraid to ask more than one broker. At the end of the day, it is your money, not theirs.