In the world of money, the words investment and insurance often appear side by side. One is an offensive strategy and the other a defensive strategy and one cannot thrive without the other.
If you play the game of money offensively –saving as much as you can without any thought of defence (protecting your assets) you run the risk of losing a big chunk of your assets because you have left them vulnerable to threats. Similarly if you focus on defence and do not get out there and save, you will not accumulate points. Like any good sports team, building wealth needs discipline, dedication and a good coach.
Head of Financial Wellness Marketing for Momentum Estelle Scholtz – Mare answers all our life insurance questions.
Do you think people understand how life insurance works?
I think they have basic knowledge but I don’t think they understand how it fits into a risk portfolio. Due to the fact that it is often coupled with other products they are often confused about how much cover they have
How would one go about finding out how much cover they need?
A useful place to start is Momentum’s MyScore solution on the Financial Wellness portion of the Momentum Website. MyScore is a solution that Momentum developed to assist individuals assess their overall financial wellness. While the solution can assist you to find the gaps in your entire financial portfolio, you can opt to take the life assurance section on its own. By answering a series of question the solution will help you to identify the gaps that exist in your cover.
Once you know your score what is the next step?
Knowing where the gaps are is the first step to financial wellness, getting the solutions is the next step. Armed with this information you can approach a financial advisor to assist you to get the correct amount of cover for your needs.
Why do you think so few people seek the services of a financial advisor?
Many people avoid going to see an advisor because they feel they will not be able to afford the solutions. It is vital to understand that an advisor is not only there to sell products, they are able to scrutinise your budget, spot inefficiencies and save you money. These savings can go towards building a solid risk and investment portfolio.
How much life cover should you have?
The rule of thumb in terms of life cover is to have 10 times your annual earnings plus debt. So say for example you earn R500,000 per annum and have R1 million in debt , then you would need cover of R6 Million. This would go a long way to ensure that your family were taken care of if you met with an early death.
Is that enough life cover for everyone?
How much cover you have depends on your circumstances. This is why it is important to seek the services of a financial advisor. They will be able to recommend the correct amount of cover for your personal circumstances.
If you are married and one of you is the primary breadwinner is it important for the other spouse to have life cover?
Definitely; if we are talking about a traditional house wife scenario- if she dies it will result in a lot of extra costs for the family, especially if there are children to take care of. The surviving spouse would have to cover the cost of child care and all the other costs associated with raising a family.
Does everyone need life cover?
No, if you have a good investment portfolio that will produce enough income for your family in the event of your death then you would probably not need it. Also if you are young with no dependants or debt then you may also hold off for a while and rather put the money into investments. However it is a good idea for everyone to have disability and critical illness cover if they are reliant on their ability to work to produce an income.
