Life cover is particularly important if you are the main income provider, explains Karin Muller, head of Sanlam Growth Market Solutions. If your family depend on your income, they would be hard-pressed to make ends meet if the worst happened to you. The last thing you would want is for your grieving spouse to be dependent on friends or family for financial support, or to worry about where the money for food, school fees, housing and utilities will come from.
Sufficient life cover can help you ensure that your family is properly cared for when you are not there anymore. So, how much life cover do you need?
Three factors to consider when calculating life insurance
- Make provision for the loss of your income. The amount of cover you choose should at least be enough to cover whatever you contributed to your joint budget, in order to ease your family’s immediate financial burden in terms of day-to-day living expenses.
- Consider the medium-term and long-term needs of your dependants. If you have small children, you would ideally want to make provision for their current and future education needs. Tertiary education in particular is very expensive, with the costs normally increasing at a rate higher than inflation every year, so few families can afford to send their children to university or college without some form of financial help.
- Provide for any outstanding debt you may have, especially debt on any assets you own, such as property or vehicles. If there is not enough money in your estate to cover your remaining bond debt, for example, your family may be faced with the possibility of losing the roof over their heads. Your spouse could possibly also be held responsible for any personal debt you may have, at a time when he or she can ill afford it. There are also specific expenses you may incur, such as estate duty, funeral costs and the fee for the executor to wrap up your estate.
Although this may seem daunting, don’t worry – with proper advice and guidance through a detailed financial plan, a competent financial planner will be able to quantify how much this will be for you and your family and help you understand how much you need to provide for.
Fortunately, a wide range of options are available in the market, says Muller, to find a financial solution that is perfect for your personal situation and needs – if you get the right advice and guidance. A professional adviser will also make sure that you fully understand the terms and benefits of whatever life cover solution you choose. Muller also cautions that you should review your financial portfolio from time to time to ensure that you have adequate cover to safeguard your family against financial ruin should the worst happen.