Types of life insurance cover to consider for different life stages

Johannesburg - Thinking about life cover insurance can feel overwhelming because it takes us to a place where the worst has happened, the loss of a loved one. In a world where insurance can feel overwhelming, complex, and intimidating, the simplest way to think about your life cover insurance is that it is a promise to offer a financial shield to those left behind. Life insurance cover is shaped by who you are and where you are in your life but at its core, it is part of the legacy we leave our families.

According to the FSCA’s 2022 Financial Sector Outlook Study, 42% of adult South Africans reported having funeral cover in 2021, down from 53% in 2019. In addition, only 10% have life insurance down from 12% in 2019.

Ester Ochse, Product Head at FNB Integrated Advice, says, “The world of insurance can be very confusing and there are a multitude of questions that people have in mind or would like to ask about what insurance one needs to take out and when is it appropriate. Basically, insurance protects you against an uncertain future event that may or may not happen as well as the financial shock that comes to play because of that event, for example the loss of a breadwinner. As FNB, we advise people to take into consideration the type of long-term cover depending on what life stage a person is in as each of these have a specific need that one must factor in their budget, especially when affordability may play a role.”

Hilda Nsibande, Business Development Head, FNB insure adds, “Life cover is commonly used to settle outstanding debts, fund children's education and maintenance, or cover estate taxes. The coverage amount on a life policy can exceed that of funeral cover given its designed to provide broader financial protection, whereas funeral cover is primarily intended to cover the immediate costs associated with the funeral ceremony. This underscores the importance of seeking financial advice to determine appropriate Life cover coverage levels. Higher life cover amounts may necessitate underwriting, involving anything from a brief questionnaire to medical tests. Certain life policies, such as the FNB Life Plan, offer an immediate expenses benefit, which is disbursed within 24 hours to help with the coordination of the funeral. In addition, the Spend Protect benefit is to cover additional monthly expenses like rent, bond repayments, groceries etc."

Ochse shares the types of life insurance cover to consider for different life stages and long-term value:

• When you’re starting to work and have no financial dependents

In this life stage, the most important component will be to insure one’s ability to earn an income. This type of insurance is aimed more on protecting someone in the event of disability and if one is diagnosed with a severe illness.  The options that one can look at here will be lump sum disability (which will pay out a lump sum amount when someone becomes disabled), income protector (which will pay a monthly income to the insured until such time as the policy states) and then critical illness will pay a lump sum amount out if one is diagnosed with an illness such as cancer. 

A portion of life cover is also a good idea here as the earlier one obtains life cover the cheaper it will be, but the weighting should be more focused on if there is a disability. If one is responsible for extended family burial costs, then funeral cover is also a component to consider.

• When you want to start a family and buy assets

When one starts a family and accumulates assets such as property or long-term investments, the considerations on which type of insurance to take up now broadens a bit as having a life cover becomes equally important. In the event that one or both parents pass on, life cover is used to pay any outstanding debts as well as the fees and taxes involved when administering the estate. This involves estate duty, capital gains tax and executors’ fee and then ensuring that the family is looked after in terms of school fees, living expenses and medical expenses.

Not having the necessary amount of life cover in place could have dire consequences for any family that is left behind. With solutions such as the Dynamic Life Home Plan, homeowners will be covered for the outstanding amount on their Home Loan. Your cover and your premiums are directly linked to your outstanding Home Loan balance and will automatically adjust as the outstanding balance changes. This ensures one doesn’t overpay for cover that they don't need.

Other long-term life insurance cover to consider during this life stage is disability cover and critical illness as these risks still remain in place. The big question here is affordability and one needs to consider how much of each they require because not having it in place will be a massive financial shock. When one is employed through a company it may be part of one’s company benefits having life cover and disability cover in place, these amounts should also be considered when calculating how much long-term risk cover one needs. Keeping an updated and valid Will is also something that one should do when reviewing one’s long-term life cover amounts.

• When you are in retirement

This is the time when someone should be enjoying their hard-earned savings and investments for retirement and the most important type of cover in this instance is life cover. If one is married, it is very important to ensure that the surviving spouse is looked after in terms of having a home, while having their living expenses and notably medical expenses covered. Disability cover or income protector may be less important in this life stage as one is not necessarily relying on an income from employment (unless still working).

Critical illness is also a cover one should consider keeping in place as one gets older. Depending on affordability, at the very least, one should have Funeral cover in place to prevent family members from bearing the burden of having to pay for the Funeral.  At retirement is also a good opportunity to ensure that ones will reflects your wishes fully and an opportune time to update the will if it does not.

“There are several other considerations that one needs to look at when thinking about long-term life insurance cover. Not only is the right type of cover important but also the right level of cover as well. To calculate this, one needs to consult with a financial advisor or alternatively use the cover calculator on the FNB banking app. Then it comes down to how much one can afford to when considering the various types of cover and in what amounts. However, the cost of not having long term risk cover in place is just too high," concludes Ochse.