Reuben Oosthuysen | Unlocking the power of life cover for young people
The best time to buy life cover is as early as possible in your career. Too often younger people, between the ages of 20 to 35, do not plan for their financial future, nor the future of their loved ones. They live by the maxim that they are young, healthy and nothing will happen to them for years to come.
Unfortunately, life is not that predictable.
Only 10% of South Africans have life insurance in place, according to 2022 research by the Financial Sector Conduct Authority (FSCA). The majority of people (50%) have opted for funeral cover instead, the FSCA’s 2022 Financial Sector Outlook Study found. It is the poorer, more vulnerable, South Africans that are underinsured the Study reveals.
The sooner you get life cover the better
Life cover is an insurance product that provides a cash lump sum on your death, or if you are diagnosed with a critical illness or disability.
Getting life cover while you are young comes with numerous benefits. Firstly, the premiums are often more affordable, allowing you to secure greater coverage for yourself and/or loved ones. Additionally, you have access to a wider range of benefits, such as critical illness or disability coverage, which may not be available to older people with pre-existing medical conditions.
Furthermore, younger people are usually presumed to be in good health, and because of that, the underwriting process is typically faster and less cumbersome. Moreover, should you wish to increase your cover or modify your benefits in the future, you can do so without undergoing a lengthy underwriting procedure.
In a world where job loss and reduced earnings became a reality for many during the COVID-19 pandemic, it is worth noting that certain life cover products also offered an income protection benefit. This feature can serve as a valuable safety net in case of unexpected employment challenges or loss of income.
Misconceptions about life cover
There is a common misconception that life cover is only meant for older people with family responsibilities and dependents. However, the reality is quite different, as many young people find themselves in the role of being their family's primary breadwinner. Young people also need life cover to safeguard themselves in the unfortunate event of a disability, or loss of income among other risks. Recognising this, life cover becomes a crucial consideration for financial protection, even for young people.
Life cover encompasses more than just protection against loss of life. It can also include provisions for disability and critical illness. As a young person, your most valuable asset is your future earning potential. In the unfortunate event that you are unable to work due to severe illness or disability, life cover with appropriate coverage can provide financial support to compensate for the loss of income and for changes you may need to make to your lifestyle (such as surgery or assistive devices).
Contrary to the belief that life cover is expensive and complicated, the application process is straightforward. It involves a simple health and fitness assessment, including inquiries about family history, lifestyle choices (such as smoking or drinking habits), adventure sports involvement, blood pressure check, and basic blood tests for cholesterol and HIV. For those who may prefer to bypass the extensive underwriting process, semi-underwritten life cover options are available where you may be able to have cover in place quickly and easily without any (or very limited) assessments.
While in many instances, young people tend to opt for funeral cover over comprehensive life cover because of the perception that funeral cover is cheaper. However, you may find that life cover is more affordable depending on the insured amount and offers a broader range of benefits, including coverage for funeral costs, compared with a funeral cover which only provides cover for the funeral costs.
It's important to note that life coverage extends beyond personal coverage. With life cover, one can also obtain cover for a spouse or partner, limited cover for your child, individuals that provide financial support, debtors, your business partner, or key employees in your business.
Choosing the right amount for you
Determining exactly how much life cover you will require can be tricky. Seeking assistance from a financial advisor or insurer is essential to help you determine the appropriate insurance coverage that will give you peace of mind that your loved ones will be well taken care of after your passing or in the unfortunate event of a disability that you will have some form of cover.
Several factors come into play when assessing your coverage needs. While some policies may offer from around R1.3 million, others can extend up to R10 million, depending on the insurer you choose. The coverage amount will vary based on your specific needs, such as the financial support your dependents will require in the event that you can no longer provide for them.
Consider the following factors when getting life cover:
- Your budget: Evaluate your financial situation and determine how much you can afford to allocate towards monthly life insurance premiums. Keep in mind that premiums may increase annually.
- Your dependents needs: Calculate the amount you currently contribute on a weekly or monthly basis to your household, family members who are dependent on you. Then estimate the cost of supporting your family and other dependents over the expected duration, factoring in inflation. Your life cover policy should aim to replace this monthly income in your absence.
- Existing debts: Account for sufficient life cover that will enable your loved ones to cover their day-to-day expenses as well as settle any outstanding debts in the event of your passing, such as home loans, medical expenses, retail accounts, vehicle finance, or credit card balances. Additionally, you may consider a credit life insurance policy that would pay off your debts in the event of your passing.
- Existing savings: While your savings can help reduce the overall coverage needed, it is important to consider any future savings your loved ones will need and include that in your life coverage.
A financial advisor will be able to help you in analysing how much and which insurance cover you need to give you the peace of mind that you and your family are adequately covered. With their professional insight, you can make informed decisions and obtain the necessary coverage to safeguard your family's financial well-being.