A large motivator for taking out life and disability insurance is to settle debt and ensure assets are available in case something unforeseen happens. Yet people with good incomes and plenty of assets often choose not to take out cover, as they believe they have sufficient capital to manage life’s mishaps.
Mark Lapedus, head of retail at Alexander Forbes Life, says he regularly deals with situations where people die or become disabled in their 30s and 40s, mainly due to car accidents, crime or unhealthy lifestyles. Despite being successful people, often at the height of their earning capacity, “those that have made no provision for disability or death often leave their families destitute with radically altered life prospects” says Lapedus.
Cost of living
It is more difficult than most of us realise to maintain a family’s lifestyle when either disability or death strikes. “Well-off people generally live large lifestyles that consume most of their income. They accumulate many costly possessions and have high lifestyle-associated expenses and overheads,” says Lapedus.
When something goes wrong, it can therefore often mean a radical lifestyle adjustment. A large, free-standing house might have to be replaced by a more cost-effective townhouse lifestyle. Two good cars might need to shrink to one more modest one. Domestic help might have to be laid off. No matter how much money you may have “you’ll probably still require some form of cover” to protect against the most radical compromises, says Lapedus.
How much cover is enough?
The strategy is to match cover to lifestyle; and the key ratio is a person’s spending value in relation to their asset value. For example, if you spend R1 000 a month and you have R1 million in the bank, you probably don’t need cover. If, however, you spend R60 000 a month with R1 million in the bank you’re not going to be able to maintain your family’s lifestyle if you become disabled or die.
“Correctly matching cover to lifestyle usually means getting a broker to run the numbers and do the calculations for you” says Lapedus.
Consulting a financial advisor and taking out a few simple well thought through covers could mean the difference between you and your dependents suffering a radical change in lifestyle in the event of a life-changing event, or continuing to live a comfortable life in which your needs are met, and your comfort is assured.
(Alexander Forbes, for Health24, June 2011)
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