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Do you have too little or too much insurance?

Posted  October 10, 2017

Having long-term insurance takes away the worry of how your family will cope financially when you are no longer around. Do you have the cover you need?

To ensure your family’s financial security, you need just the right amount of life, funeral, dread disease and disability insurance - not too much, and not too little. Take steps to make sure that you are not under-insured, or over-insured.

If you are under-insured, and have too little cover, if something happens to you, your family won’t be able to meet all their expenses. They will need to make do with a lower income, reduce expenses and adjust their lifestyle.

On the other hand, it doesn’t make any sense to be over-insured. If you are over-insured you have cover you don’t need, and end up paying more than you should on your premium. 

 

 

You can avoid these situations by completing a financial needs analysis to give you a good idea of how much cover you need. 

A financial needs analysis assesses your financial situation, establishes your financial goals and what you need to do to achieve your goals.

You can pay your expenses – if you have the right amount of cover. 

Financial goals range from retirement needs to protecting your income and assets, and are often linked to your life goals. For example, you may want to be financially independent in ten years, or retire at age 60, or make sure your children’s education costs are covered if you are not around.

When you know your financial goals, you can set up plans to achieve them such as investing a certain amount each month or taking out life, funeral, dread disease and disability insurance.

You can pay your expenses – if you have the right amount of cover. 

Financial needs analyses ask a number of questions about you, your family and your finances. These are important for insurance because they show you how much you need to cover expenses or pay off debt if you are no longer around, or unable to work. Financial needs analyses answer the question “what if?” For instance, what if you passed away tomorrow, would your family cope? Your financial needs analysis tells us how much cover you will need so that your family can meet their expenses.

Who will do a financial needs analysis for me? If your financial affairs are straightforward you can use our online financial needs analysis, or call us on 0860 10 53 40 and talk to a consultant who will assist you.

If your financial life is complicated, and you support numerous family members, perhaps different households or have different incomes and commitments, a more detailed financial needs analysis with a financial advisor may be required.

Prepare for a financial needs analysis In addition to your financial goals, a financial needs analysis will ask about your income and expenses, assets and debts, and any investment and insurance products you contribute towards. Have these details ready when you complete your financial needs analysis:

  • The value of your assets – your home for example, savings accounts and investments
  • Your debt – how much you owe on any loans, motor vehicles, credit and store cards, any family or employer loans
  • Your income – how much you earn and the total income in your household
  • Your expenses – how much you spend each month
  • How much and what kind of insurance you have
  • Details of your savings and investments, and how much you contribute towards these each month
  • How much extra you might be able spend on insurance and savings each month

You can use your latest statements to find these amounts, or call your insurer, bank or the relevant company for current balances.

Take action The 2016 True South Insurance Gap Report showed that on average, South Africans are underinsured by 59%.

If you are under-insured, consider increasing your cover, but don’t commit to amounts you cannot afford. Taking extra cover may not be as expensive as you think. The Association for Savings and Investment South Africa say that an average earner would only need to spend an additional 4.2% of their monthly after-tax income to purchase adequate life insurance, and 2.4% a month for disability cover.

If you are over-insured, reduce your cover unless your circumstances are going to change in the near future, and consider investing the extra funds.

The bottom line The right amount of insurance is just enough. Complete a financial needs analysis to make sure you have the right amount of cover. If you do, your insurance will work for you when you need it. And don’t forget to revisit your financial needs analysis regularly to see what has changed, and to make sure that your cover is still adequate and can meet your financial needs.

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