According to the findings of ASISA’s 2022 Life and Disability Insurance Gap Study, 14.3 million income earners in South Africa only had sufficient life and disability insurance to cover 45% of the total needs of households. This statistic implies that households with one primary income earner would have to reduce their household expenses by more than half should that person pass away or become disabled.
This is according to Mariska Comins, Head of Technical Support, at PSG Wealth who says that peace of mind and financial freedom go beyond just making the correct investment and savings decisions. “It extends to preparing yourself and your family for unforeseen circumstances and circumstances that are not always top of mind such as death and disability.”
What to consider
Your financial situation should be viewed holistically. “This includes investments, life cover and short-term insurance. Creating a holistic plan of your financial goals and needs (and keeping that plan updated as your needs change over time) is crucial in creating peace of mind and, ultimately, financial freedom,” says Comins. She adds that employer benefits like group life cover and retirement funds are often overlooked but are important to include to ensure you have a true reflection of your financial plan.
Having a good understanding of the resources available to you (like proper budgeting, debt reduction and estate planning) and making use of those that are applicable to your individual circumstances will give you a solid foundation towards achieving financial freedom, says Comins. And she says it will help you avoid a scenario of being caught on the back foot in the future.
Talking about death makes for a tough but necessary conversation
The first and most important step when it comes to planning for your death is creating a will. Comins says you must make sure that those you leave behind and the person you trust to carry out your final wishes (executor) are aware of what you want. “This will greatly assist in handling your estate as efficiently as possible, making sure your dependants have access to their inheritance, rather than them having to struggle (potentially for months or even years) before they can access assets or funds from your estate.”
Comins adds that Life policies are another helpful tool when planning for your passing. “Apart from providing future income for your family, proper estate planning will reduce your estate duty liability and help provide your dependants with sufficient liquidity to cover debt and other related expenses, thereby ensuring that you don’t leave your family with an unexpected financial burden,” she says.
Disability cover and income protection for the unexpected
This is a form of cover designed to pay out in the event of you becoming temporarily or permanently unable to work due to an illness or injury, explains Comins. She says it is intended to replace (either in part or in full) any future earnings that you may lose in the unfortunate event that you are unable to perform your occupation. “Income protection is a benefit that provides cover during temporary illness and does exactly what the name says – it pays out a percentage (usually maximum 75%) of your income for a period of time in which you are unable to work.”
Dread disease cover (also known as critical illness or trauma cover)
Dread disease cover is aimed at providing cover for medical conditions that would have a major impact on your life. Comins explains that this includes illness or injury that would require costly treatment or rehabilitation and which has a medium to long-term recovery period, as well as conditions that would require significant lifestyle changes. “When considering the appropriate level of dread disease cover for your specific needs, you should take into account factors such as your family’s history of chronic diseases, how comprehensive your medical aid is, whether or not you have gap cover in place, and the extent of your disability insurance.”
Always keep financial freedom as your key goal, but also plan sufficiently to ensure you create a safety net that can provide for yourself and your family if the unexpected happens.