With the fast pace of life, it’s easy to lose track of how quickly one’s personal and financial circumstances evolve.
With September being life insurance month, now is an opportune time to review the long-term insurance cover that you have in place. With the fast pace of life, it’s easy to lose track of how quickly one’s personal and financial circumstances evolve – with many life events being triggers for adjusting one’s insurance cover either upwards or downwards.
In this article, take a look at 10 life events that could prompt the need for a risk cover review.
- Changing employment: A move from one employer to another will no doubt necessitate a risk cover review as it’s likely that the group benefits offered by your new employer will be different from those you previously enjoyed. This is an excellent time to establish what life, disability (lump sum or income protection) and/or severe illness benefits your new employer offers and whether any shortfalls exist in your risk portfolio. Remember, any cover shortfalls can be addressed by taking out personal insurance cover, although this cover is likely to be more expensive as you will be individually underwritten. As such, it generally makes sense to first maximise the group cover offered by your employer and then top-up any shortfalls using personal insurance. Remember to obtain confirmation of your new group cover benefits before signing your contract of employment.
- Getting a salary increase: An adjustment to your salary may also prompt a review of your insurance cover for several reasons. Firstly, group life and capital disability cover are often expressed as a multiple of your annual income which means that a salary increase will result in increased life and lump sum disability cover. Secondly, group income protection is generally expressed as a percentage of your nominated income meaning that your disability income will increase accordingly. If you have personal insurance cover in place to supplement any shortfalls in cover, your salary increase may therefore allow you to trim back your personal cover somewhat which should result in a cost saving.
- Being retrenched: Following a retrenchment, your group insurance cover will fall away which could leave you perilously underinsured. While cutting back costs is likely to be top of mind, think carefully before reducing or cancelling any personal life insurance that you have in place as you may not be able to obtain cover at the same price in the future. Further, any changes to your health status may result in exclusions should you apply for cover later on. With your group cover falling away, it is important to take stock of the personal cover that you have in place and make adjustments to ensure that you are not financially exposed during the period of unemployment.
- Getting married: Entering into a marriage or life partnership will likely necessitate a review of your life cover to ensure that your spouse or partner is adequately provided for in the event of your death, and vice versa. How much life cover you need will depend on a number of factors such as your spouse’s net worth, whether they are employed, their level of income, living expenses, and health status, amongst other things. Once you have adjusted your life cover, be sure that your policy and beneficiary nominations are correctly structured so that the proceeds are allocated appropriately in the event of your death.
- Financing a property: When financing a property using a home loan, it is common for the financing institution to insist that you take out bond cover as security for the loan. While most financing institutions offer bond cover to their customers, it is generally more cost-effective to increase your existing life policy by the value of the home loan. Remember to review this cover regularly as your home reduces to ensure that you do not pay for life cover that you no longer need.
- Having children: Welcoming a new baby into your family should prompt a review of your life cover to ensure that your child will be adequately provided for financially if you are no longer around. Before increasing your life cover, give careful thought to the financial needs of your child including costs such as schooling and tertiary education, child- and aftercare, sports and extra-murals, and medical care, and then adjust your life cover in accordance with the capitalised amount. Again, be sure to review and adjust your life cover as your children grow older to ensure that you are not paying for cover that is no longer necessary.
- Setting up your own business: If you resign from formal employment to set up your own business, it is likely that your risk cover portfolio will need a total overhaul as multiple factors will need to be considered. For instance, if your group life cover offers a continuation option, this may be a useful way to secure cost-effective cover in your personal capacity. This is because a continuation option allows you to convert your group life cover into personal cover when you leave the employ of a company, with the benefit of minimal, to possibly no, medical underwriting. If you need to increase your personal cover, you will be medically underwritten in respect of the increased portion – a process which will take into account the nature of your occupation, qualifications, smoker status, current health, the extent and destination of your occupational travel, and any high-risk activities that you regularly engage in, such as motor cross or scuba diving.
- Changing family circumstances: As your children grow older and start becoming more financially independent, the burden of having to provide for them financially in the event of your passing diminishes – providing an opportunity to adjust one’s life cover accordingly. At this point, it is also a good idea to consider the extent to which your net worth has increased and to completely re-assess the need for life cover in your overall portfolio. Before cancelling any life cover, however, give careful thought to other financial planning considerations such as the need for liquidity in your deceased estate and whether there are any other family members, such as siblings or elderly parents, who are – or are likely to become – financially dependent on you.
- Getting divorced: A divorce is a definite reason to review one’s life insurance especially as your financial goals and objectives are likely to be completely reconfigured. Further, if you’ve been ordered to pay maintenance in terms of your settlement agreement, your divorce order may insist that you secure sufficient life cover to honour your maintenance obligations in the event of your death or disability. It’s probable that following the divorce you will no longer wish to provide financially for your ex-spouse should something happen to you, which would allow you to adjust your policy accordingly. Again, before reducing any cover, think carefully about the financial position your children would face if you were to pass away prematurely, taking into account the financial stability and reliability of your ex-spouse, the current age of your children, and your net worth.
- Retiring: Retirement is a significant event from a financial planning perspective and reviewing your insurance cover at this point is essential. Remember, if you’re formally retiring from your employer, your group life and disability cover will fall away. Take careful stock of your personal insurance cover to determine which benefits fall away at retirement, keeping in mind that some benefits, such as lump sum disability, generally cease at retirement age. Importantly, be sure to understand the effects that this will have on your overall portfolio and your ability to self-fund in the event of disability or dread disease. If you have whole life cover in place, be sure that you clearly understand the role it plays in your estate plan and that it is structured to be fit for purpose.