If an intelligent life form from the planet Vortez was to arrive on earth and examine the way life assurance policies have been set up, he would have to conclude that your plan is to Cash Out after you cash in your chips.

The partnership between the marketing gurus and actuaries has grown assurance products that have made the corporations they work for immensely wealthy. The sales force will sell you products that promise wealth and riches in your retirement. The problem is, you will be worth more dead than alive.

Of course when you are a young breadwinner in a new marriage, with a budding family and lots of responsibilities, you must have adequate life cover. Very few people would ‘rest-in-peace’ knowing that if their income was lost their family would lose their home, car and financial stability. Raising children is hard enough for a married couple with income but to become a surviving spouse with debt and an insufficient salary is enough to challenge the strongest individual.

However, having survived the trials of work, play and parenthood, most mature citizens (in their late fifties and early sixties) have more life cover than they had when they were thirty - which does not make sense at all.

Each time we have our policies reviewed we are sold more cover. In addition, most policies are written with a portion of the annual escalation to be used for increasing death benefits. Couple that with the meagre returns that we have been seeing from most of the savings (endowment) portions of the offending policies and you will only have a financial bed of roses after you’re pushing up daisies.

Even more ludicrous is the fact that you can only ever get one ‘benefit’. If you die before the policy matures, your heirs will receive either the death benefit or the cash value (the greater amount) but not both. If you mature the policy the cash value will be paid out and your death cover will be cancelled. Then, you’ll be strongly encouraged to reinvest the cash with the same Assurance Company and withdraw a monthly income.

Is there a better alternative? there most definitely is.

The Theory of Decreasing Responsibility

This concept simply states that when you are young, with children, a mortgage, lots of monthly commitments and no savings, you need a lot of life cover. As you get older, your responsibilities decrease with the children grown up, your debts paid off and your savings growing.

AGE 25 AGE 65 In the early years you need a lot of cover. In later years, you should have assets. Young children Children grown High debt No debt Big mortgage No mortgage Family needs your income Retirement income needed In the early years, you don't have savings. In later years, you shouldn't need cover.

* Adapted from Common Sense by Art Williams

The purpose of life assurance is to protect your family from the premature loss of your working life’s income (which could amount to R3-, R4-, R5-million or more) and free them from financial worry after the trauma of your death.

Later in life, if your savings and investment plans have been properly worked out and adhered to, you should have a steadily increasing net worth. Eventually, your investments should be large enough to ensure a comfortable life for you and your spouse in the absence of that monthly salary cheque.

With the right life assurance and smart investment choices, most salaried people could achieve true financial independence well before retirement. In addition, by separating your life cover from your investments your family would receive both the cash value of your savings and the death benefit in the event of your early demise.

Your goal should be to become wealthy enough to be self-assured long before you retire. Life assurance protects your family until you’ve had time to build financial security. Pure life assurance cover (for a young healthy person) is a very affordable way to hedge your risk.

This article was originally printed in StarLine ******