This is usually bought to protect a family member or a business partner or to cover outstanding dept. There must be some sort of insurable interest before you take out life cover. 

How much life cover should I have?

This is normally determined by doing a financial needs analyses (FNA). However, it is not necessary to do a full FNA to buy life cover. Life cover can purchase for dept outstanding or to purchase shares from a business partner. However, 90% of the time it is used to protect loved ones from an unexpected loss of an income earner.

A very general formula of the amount of cover your family may need is, the amount of dept plus 12 x annual income. Number of dependants and parents you are supporting can change the value to a larger amount. Life cover is normally underwritten, and terms are given before acceptance. Should there be any health problem or pre-existing conditions, an exclusion or premium loading may be applied. Claims may not be paid should important information be left out during underwriting. Most life cover policies have a two-year suicide clause, meaning no claim will be paid in the first two years of acceptance of the policy for suicide. Of course, one should purchase as much as the formula will allow and within their budget. Often affordability will restrict the correct amount of cover that needs to be purchased. 

Disability Cover

This is cover that can be purchased to cover a person should they become either permanently or temporary disabled. This cover does become more complicated and is always a good idea to read your policy document to make sure the cover is correct for your needs because disability can cover a whole range of disability events. It is also possible to purchase temporary disability (Income disability) which can range from a seven-day waiting period to age 70. Temporary income disability will pay a monthly amount as opposed to a lumpsum amount. Products terms may vary from one product supplier to another. 

How much disability cover should I have?

The short answer is as much as possible. But companies can reduce the pay-out amount if the cover is too high to prevent personal enrichment (be in a better position than before you are disabled). The formula is roughly the same as for life, but allow for an extra amount because you will still be around, and you could be a financial burden to your loved ones. Of course, one should purchase as much as the formula will allow and within their budget. Again, affordability may restrict the correct cover amount that needs to be purchased

Trauma / Server Illness

You can purchase this cover to allow you to recover from an event that may set you back financially. The event can be a range of incidents that could occur that you could fully recover from, such as a heart attack, stroke, cancer, major organ transplants, major burns covering a percentage of burns covering the body and coma’s (96 hours) plus many more potential event specified in the policy document. You can purchase up to R 7 million worth of cover. However, a good indication is approx. one year’s annual salary. This type of cover is more expensive than life and disability cover because the life assured is more likely to claim under this benefit. Each service supplier will have their terms and conditions, and this is explained in their policy documents.

Each company have many other benefits such as funeral, education, etc, benefits that can be added to your life policy. Always good to check if you are comparing pricing of different companies. These are purchased as the need may arise. Some life companies offer cash rewards on vitality status or fitness and healthy living. They can be complicated and sometime difficult to maintain but also, they could determine your premiums (Making them less expensive) 

Always consult with a registered financial advisor and complete a financial need analysis to ensure you have the correct cover in place. 

Premium Increases

One needs to be careful when choosing a life policy as some companies start on lower premiums, but the annual increase is higher each year making the policy expensive as time goes by. You can buy more cover now, but you can be subjected to higher premium increases later making the policy difficult to afford. You can buy level premium policies (Fixed premium for fixed benefit) but these are expensive and over a ten-year period, it will likely cost you more. Age rated policy’s do get very expensive once the life assured gets into their late 50’s. Certain benefits can expire at certain ages, i.e. Capital disability very often expires at age 65.

Always read your quote carefully and never hesitate to ask your financial advisor questions on benefits and terms that may be difficult to understand. Almost all life policies have a 30-day cooling off period which allow you to a) Cancel the policy because it was not what you wanted or expected or b) Change the policy to what your expectation was. Also read your policy document once issued so that you understand the term’s and conditions or ask you advisor to help you understand them.

There is no contract to Life policies so you can cancel at any time unless you have signed a fee agreement, which means if a life policy is cancelled in two years, the advisors commission will be clawed back and they may want you to then pay their fee. This will be in their contract, but most advisors do not have this claws in their contact as they feel confident that the right product was sold.   

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