Question:
How important is it to have life cover? I don't have any at the moment.

Answer:
Insurance has long been regarded as a grudge purchase. Perhaps this is mainly due to the fact that those 'complaining' are still alive! I have never met a widow(er) who concurs with this outlook. Truth is, while you may never get to enjoy the fruits of this protection, it plays an integral role in your financial peace of mind.

How much cover do you need?

The rule of thumb suggests that a good starting point is to ensure that all your liabilities (home loan, personal surety for your business, credit card debts, etc.) are covered by an equal lump sum cover amount.

Then you need to consider the level of support for surviving dependants. This includes cost of living and the associated day-to-day expenses as well as 'extraordinary' expenses such as schooling for children or even potential cash legacies. Remember, many expenses may have been eliminated by the settling of debt (such as your home loan) and therefore will reduce your monthly requirements.

Once done, compare this to your current wealth and where you could draw an income in the event of death. This generally would be derived from investments (pension/provident/RA included) and potentially other income generating assets (such as a rental property). The difference between your current available investments and your needs need to be topped up by life cover. This then suggests that as you grow older and accumulate more wealth, your need for life cover reduces accordingly.

Importance of disability cover

This is about as close as you’ll ever get to cloning yourself in the workplace. Imagine you had an ATM machine installed (and stocked) in your living room and every month it spat out a handsome wad for your use and enjoyment. Now ask yourself, would you insure it? Absolutely! Truth is, you are your family’s ATM and your ability to earn an income determines whether that ATM is adequately stocked or not.

With this in mind, it soon becomes apparent that your ability to earn an income could well be your greatest asset and is therefore well worth protecting.

Critical illness cover

Because our lifestyles (and diets) have changed and deteriorated over the years, our risk of falling victim to a critical illness has increased dramatically. However, the greater risk ironically lies with the advances in medical technology and hence an increased chance of survival from one of these diseases.

While a more positive medical prognosis is comforting and encouraging, the financial consequences cannot be ignored and the 'cost of survival' could be deadly to your financial well-being. Not only does advanced medical technology and specialist advice come at a premium, but the psychological impact can be overwhelming.

With the three main culprits being heart attack, cancer and stroke, there is no doubt that one carefully re-evaluates their lifestyle in the aftermath of treatment and is often challenged by their work/life balance. The question is: can I afford to slow down?

On page two: Some stats to consider...

What we waste money on `What do you waste money on?` Most respondents in a new poll seem to agree...

How to budget The disease? Overspending. The cure? Drawing up a budget. Kabous le Roux on how to do it...

Taxing retirement funds The tax considerations of various retirement funds before, upon and after retirement...