13 Nov CompariSure – How much is enough when ensuring your loved ones are covered
Why do we all ‘voluntarily’ go to work every day? For many, the answer is plain and simple: to earn an income. We then spend this income on the things we view as most important; ranging from basics like food and shelter, to experiences, gadgets and entertainment. Upon becoming parents, these financial priorities shift towards ultimately affording our family – especially our children – every opportunity possible so that they can reach their full potential.
In life, however, unexpected things happen and this income can be taken away in an instant. This, says Jonathan Elcock, founder and CEO of CompariSure – South Africa’s first independent online life insurance comparison platform – is essentially the purpose of life insurance. “Life insurance is about buying protection for all the things you would have paid for with the income you would have earned over a 40-year working career, in the event that you are suddenly unable to earn this income, due to death or disability.”
Understandably, Elcock says that having children is therefore seen as a large driver in the psychology of taking out life insurance. “When you have a kid, it’s often the first time in your life there is someone truly and fully dependent on you. That’s probably the biggest life event driving insurance uptake, but too many South Africans remain underinsured despite this.
This was confirmed by a recent CompariSure survey of over 1000 South African parents earning between R12 500 and R30 000 per month, which found that over half of the respondents (53%) had no life cover in place.
The exception to this, notes Elcock, is funeral cover. “Given the cultural significance of funerals, many South Africans have funeral cover and nothing else. As funerals can cost 10-20 times what the deceased may have been earning per month, people want to ensure their families are not saddled with large expenses should they pass away.”
“But funeral cover is only one of the big ticket items that comprehensive life insurance should cover,” says Elcock, who goes on to unpack the other four critical components that life insurance should cover.
When you die, any dependents you leave behind will no longer receive the monthly support you provided them via your salary. Of course your spouse might remarry or get a better job, but these things take time. As a rule of thumb, we suggest covering your dependents for five years of income, so if you earn R20,000 per month, then 20,000 x 12 (months) x 5 years = R1.2m cover.
If you have any debt, such as a mortgage or a car loan, you will still be liable to repay that debt. What this means is that your family members will be saddled with that debt in the event that you pass away. Life insurance removes that risk, by paying off any outstanding debt you may have.
Responsible parents want the best education for their children, leaving nothing to chance should they pass away. As we all know, education is expensive, and in the event of one’s death, life insurance can ensure your children receive the education you would have wanted for them. Depending on your children’s educational aspirations, between R300 000 and R2million cover is typically required per child.
4. Estate duty
If your net worth (assets less debt) exceeds R3.5million, you will be subject to estate duty, which needs to be settled before you can pay any inheritance. The amount of cover required is calculated as: (Net asset value – R3.5m) x 20%, so if you have R13.5m in cash for your descendants, you will have to pay R2m in estate duty. If you have life insurance, some of the pay-out can be used to cover this.
In terms of ‘how much is enough’, Elcock says it’s not really a question of cover for this thing or that thing. “If you have life cover of R2million, the payout can be used to pay whatever your beneficiaries choose, with the exception being credit life where the contractual debts covered by your credit life policy must be settled. In order to get to this figure, CompariSure has created a very simple ‘help me’ tool as part of the online comparison that will walk you through the process and suggest a reasonable amount based on your current personal and financial circumstances.
“Following this, we will provide you with multiple life quotes from South Africa’s most-established and trusted life insurer, followed by the opportunity to speak to one of our qualified agents who will guide you through the process of finding a product that best matches your needs,” Elcock adds.
An important thing to note here is budget, he says. “Many people want to be as responsible as possible, and may only have a few R100 to contribute towards life insurance. At the end of the day, this is absolutely fine, as any cover is better than no cover,” Elcock concludes.
Visit the CompariSure website to find out more about how to get the best life cover for you: www.comparisure.co.za