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When your client says they cannot afford life cover

Life cover is a need, not a want

1 September 2021
4 minute read

“I know I need life cover, but I cannot afford it” Does that sound familiar? Like many financial advisers, you will have heard this from clients. Sometimes it’s true, often it isn’t, and with a few small changes to the budget, funds can be found, and families protected.

In this article we’re going to go through discussion points to cover with your clients to help them appreciate life insurance as a need, not a want, and help them to find ways to afford the premiums.

Why life cover is a need

The average South African family needs R1.6 million life cover to maintain their standard of living if an income earner dies. Since those who have life insurance have, on average, R600 000 in life cover, the family would have to either reduce expenses by 32% or find an extra R5 362 to maintain their standard of living on the death of the income earner. This is according to the 2019 Insurance Gap Study, which measures the insurance gap for life cover and disability in South Africa every three years.

This number shows the stark reality families may face when a breadwinner dies, even if they have life insurance.

To show how the death of an income earner would affect your client and their family, draw up a mock budget showing all the expenses the family incurs, and the family income without the income earner’s contribution. This mock budget can be used to determine either how much more income the family needs to generate to cover these expenses, or by how much they need to reduce expenses if the income earner dies. 

Make sure these expenses are included in your mock budget:

  • Expenses associated with death such as funeral costs, administration expenses of winding down an estate such as executor fees and any taxes, and sometimes medical bills.
  • Debt repayments on a family car and their home loan.
  • Daily living such as food, clothing and transport.
  • Education costs, including school and university fees, uniforms and stationery, and extracurricular activities.
  • Insurance, savings and investments so that the family has protection for their assets such as a car and home, and funds for emergencies, further education, holidays and retirement.

It isn’t often that a family can fund all these expenses when a breadwinner dies. Many either have to do without, or find ways to increase their income, such as working two jobs or starting a business on the side. 

Show how life insurance premiums can be more affordable 

Take care of personal health
Life insurance is cheaper for clients who don’t smoke, are generally healthy and manage any chronic conditions. Smokers can pay up to 50% more for life cover. If your clients focus on their health, manage high blood pressure, high cholesterol and diabetes, and maintain a healthy weight – or lose weight if necessary – their life cover premium should be cheaper.

Align client needs with affordability
If your client cannot afford the premium for all the life cover they need to replace their income, they shouldn’t abandon life insurance completely. A preferable alternative is for the client to take as much cover as they can afford and increase it over time as their budget allows. Although a smaller sum assured may not completely make up for lost earnings, it will help a family financially if an income earner passes. When you meet with your client for annual reviews you can suggest increasing cover, in line with needs and affordability.

Innovative ways to increase cover
With 1Life Pulse Life Cover policyholders can increase their sum assured if they make healthy lifestyle choices, such as eating healthily, managing their stress and getting a good night’s sleep.  Policyholders can earn up to R16 320 in life cover a month, up to a total of R500 000. And, when a client takes a 1Life Pulse Life Cover policy of over R1 million, they immediately qualify for bonus cover of between R50 000 and R125 000.

Find funds for life cover in the family budget

Budgeting is an underrated financial skill, and a space where you can really help your clients save money so they can afford the important things in life. Go through your client’s budget with them, making sure they are tracking all expenses, and interrogate all their expenses. As an objective eye, you can identify the difference between needs and wants for them and suggest allocating money away from the wants towards the needs (insurance). 

Based on their needs, age and life stage you will also be able to determine if they are allocating appropriate amounts of their income to investments and insurance. 1Plan, 1Life’s FNA, will help you with this as it calculates the optimal amount of life insurance and investment, or savings amounts for a client within their budget constraints.

Remember, you are looking for a small percentage of the budget. In the Gap Study, only an extra 4.6% of after-tax income was needed to make up the gap.

Life cover is a need

Life cover isn’t a nice to have – it is a must have. Life cover protects families if a breadwinner dies, giving the family financial stability, and helps families build their wealth: wealth that can give future generations financial security.

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