Life Insurance is most commonly associated with a single product, life cover. But this is just one small component of a holistic financial plan. In the same way that if you have a car and a home, you should not just insure a car; well you should not just insure your life with life insurance.
Life Insurance actually refers to a bunch of products that have been designed to protect you financially if you suffer a life-changing event, such as an illness, injury, disability or death. More specifically, it is a product that is designed to put you (and your family) in the exact same financial position that you would have been in before you claimed. For example, if you become sick or disabled and are unable to work, life insurance is designed to cover and replace your lost income so that you don't have to worry about how to support yourself.
So, Life Insurance refers to a group of products, not just life cover. You get:
- Life Cover: Life Cover is a benefit that will pay your loved ones a sum of money in the event of your death. Life cover is there to look after and provide financial security to your dependants if you are no longer alive and can support them. Life cover may also be used to pay off any debts that you may have outstanding.
- Disability Cover: Disability cover is a benefit that will pay you a single lump sum if you become permanently unable to work. The pay-out can be used to cover your expected future lost income and all the expected future expenses that you and your family may incur after you become disabled. It can also be used to pay off any outstanding debt so that you can sleep easy at night knowing that your loved ones are taken care of.
- Income Protection: Your income is your most valuable asset. If you were unable to work, it would be difficult for you to cover your daily living expenses, such as housing, clothing and food costs. The regular income payment replaces all or a part of your lost income (depending on how much you select), which means that you won't experience financial strain due to your disability and inability to work.
- Critical Illness Cover: This benefit is also known as Severe Illness or Dreaded Disease Cover. It pays you a selected amount if you suffer from an illness, disease or injury which can be used to cover expensive medical treatment, new-age medical devices or any home improvements that may be needed if you suffer a severe illness or injury.
In fact, unbeknown to most people, your biggest asset when you are a young adult is your future income, making income protection and disability cover far more relevant than life cover.
A 30-year-old accountant earning R50 000, for example, is exposed to a total loss of income (in today's terms) of well over R15 Million*. Suppose this accountant becomes disabled or sick and unable to work. In that case, that is R15 Million in lost income that they will need to find from another source, like relying on family, to maintain their standard of living until retirement.
So, the next time you think about life insurance, don't just think about life cover.
To get a quote in seconds or to chat to an expert financial adviser for more information, visit www.onespark.co.za today!
*Internal OneSpark research. Assuming 8% salary inflation until age 65 and a risk discount rate of 10%.