With September ushering in spring, there’s a feeling of renewal right now, almost like we are hitting the ‘Refresh’ button. It’s a time where bad winter habits are finally broken and we can start new routines that prioritise health. But what about the health of your finances? When it comes to money matters, we often find ourselves focusing only on the rands and cents coming in and going out every month. It’s important, though, that we also consider our finances in the long term, and this is where life insurance comes in. It’s critical to review your cover regularly so that you ensure it’s keeping up to date with any relevant changes in your life.
Schalk Malan, CEO at needs-matched insurer BrightRock, has the following advice on some things to think about when reviewing your cover.
- It’s not pleasant to do, but think about the whole picture and consider it in some detail. What your family does if you suffer a temporary illness or injury may differ substantially from what they might do when you die. If the insured event happens, will the family change its lifestyle, sell one car and sell the house to rent a flat instead? Once you’ve understood the potential impact of a specific insured event, consider each of your financial needs – this will give you a good idea of what risks you should prioritise, where you can afford to take some risk and where you need to be comprehensively covered.
- Don’t skimp on advice. Insurance products are complex by nature, and making the wrong choices could have far-reaching consequences for you and your family. Getting professional advice from a properly trained and accredited financial adviser is important. Ask questions, insist on clear explanations and shop around for the best advice. Take the time to understand what you’re buying.
- Know what you’ll be paying in the long term. Don’t just settle for the cheapest premium. It’s important to understand the funding pattern – how your insurance premium will be funded in the long term. Some funding patterns have a “buy now, pay later” structure that may make your cover cheap today but unaffordable in the long term. Make sure you understand the long-term implications of your choice, so you’ll be able to afford your cover when you most need it.
- Ask yourself how far your cover will go after an insured event happens. Life insurance is sold as a rand amount of cover, which often sounds like a lot of money if you don’t relate it to your financial needs. Say you have R1 million’s cover. If you are disabled and can’t work anymore, will that be enough to cover your family’s living expenses for years to come? If you die, how far will that R1 million’s cover go in meeting your family’s needs? Is it enough, close enough or not nearly enough?
- Don’t put the policy in the drawer and forget about it. That’s what most of us do when we’ve bought life insurance – but we forget that our life changes. Make sure you review your cover at least once a year but remember that if major life events happen, you might need to review it more often. If you’re starting a business, getting a raise, buying a new house or a big boat, getting married, having a child – these are events where your insurance might need to increase. And if you’ve paid off a major debt and your children have left home, you might be able to reduce your cover too and put your premiums to use elsewhere.
- Tell your insurer if your lifestyle changes. If you’re planning to live abroad for a few months, you’ve taken up an adventurous new hobby like quad-biking or you’ve just given up your job in the corporate law to become a scuba diving instructor – these are all lifestyle changes that may affect your insurance risk and your cover with your insurer. If you don’t tell your insurer about these changes and you later claim, this could affect how your claim is paid out. It’s best to let your insurer know when your health, your job, your country of residence or your hobbies and habits have changed substantially. That way you have peace of mind, knowing your cover and your premiums are correct and your claims will be paid. BrightRock does not require its clients to inform us of changes in hobbies or jobs, however, unless they’re to do with aviation.
Important events that should prompt you to review your cover
According to Malan, there are several key milestones in life that may increase the level of financial risk that you or your dependants may face if you should suffer an injury or illness or die. These milestones include:
- Buying a major new asset that sees you incurring new debt, for example when you buy a house or a new car or take out a loan to start a new business;
- Having or adopting a child or when there is a change in your dependents – for example, if you marry someone with children from a previous marriage, your financial obligations may increase substantially;
- Getting married, again because your lifestyle and financial obligations may increase;
- A significant increase in income – for example, if you’re promoted and your salary increases substantially, your lifestyle will probably improve and your insurance cover needs will therefore increase;
- A significant increase in the value of your estate – for example, if you inherit assets from a relative, this increases the value of your estate but will also increase the estate duty payable on your estate.
Malan says, “If you fail to review your cover when these major lifestyle events occur, you may find that your life insurance cover is inadequate to provide for the full extent of your or your beneficiaries’ actual financial needs at the time of your claim. BrightRock’s needs-matched life insurance policy is specifically made to the individual’s requirements, delivers better value for money and is presented in a format that is easy to understand. This empowers clients in that they can understand what it is they are buying now and in the future.”