Every day we are bombarded with a mix of print, radio and TV adverts on the merits of life cover. There is no shortage of examples of families being left destitute because the breadwinner died without having a policy in place. However, like all investment and insurance products, a life policy has specific values and is not a product that everyone needs.

So when do you need it?

A life policy is a vital component of a financial plan if you are the breadwinner of a family, have dependent children and financial commitments like home and car loans. Very few people would want their families to suffer the consequences of having their income suddenly stopped. Raising children is hard enough for a married couple, but to become a surviving spouse with debt and an insufficient salary is enough to challenge the strongest individual.

When everyone had some kind of life policy

In the past, when legislation was less developed and insurance sales people went door to door selling their wares, everyone had some kind of life policy. Little was done to educate the buyer and as a result many of these policies lapsed creating a certain amount of negativity around the product.

One of the problems with old school life policies were they were sold as investments. Let’s face it; selling a product that deals with your early demise is not exactly sexy. So an investment portion was included in the premium. Future values looked impressive, (they always do if inflation is ignored) so people bought them dreaming of great wealth when they retired. Of course this did not happen because the lion’s share of the premium went towards the risk cover leaving very little for retirement.

New generation life cover offers a much better alternative, pure life cover with no investment portion. This makes the policy much cheaper and individuals can then seek investments that will deliver the returns they need.

Life and disability

So does everyone need a life policy? The short answer is no. When you are young, single and have no dependents or debts you do not need life cover. It would be a much better option to invest in a disability policy and a retirement plan.

Here are some sobering facts about disability:

• You stand a 1 in 8 chance of suffering a disability before age 65.

• One year of disability can use up to ten years’ worth of savings.

• Males are twice as likely to suffer a disability as females.

• More homes are lost through disability than death.

• Disability incidence rates have more than doubled in the last 20 years.

• Around 10 per cent of the world’s population, or 650-million people, live with a disability.

• In South Africa, only 25 out of every 10 000 people who are afflicted with a disability are rehabilitated and return to work.

• Smokers are at a significantly higher risk of disability than non smokers.

• According to a 2007 survey compiled by True South Actuaries, South Africans are under insured by approximately R6-trillion for disability.

• If you are disabled at age 27, and want to enjoy a real income of R25 000 a month until age 65, you will need a lump sum of approximately R8-million.

So, no prizes for guessing that disability cover is a useful product.

Article continues on page two: when life insurance doesn't make a lot of sense...

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