Life cover, and severe illness and disability cover – do you need the cover and, if so, how much do you need? These are common questions and the topic of the fourth section in our Wealth Management series. So far we have covered Setting our Goals, Budgeting and Marrying our Goals to our Budget.
We need life cover so that, in the event of our death, we can cover debt, pay estate duty and pay the executor fees payable on death. Estate duty is calculated on our net estate above R3.5 million and an amount of 20% is payable to SARS. Executor fees are charged by our executor up to 3.5% + VAT of our gross estate. In the event of having dependents, life cover can be used to provide them with an income or legacy in the event of our death. Life cover is usually provided as a lump sum which the surviving spouse and dependents can invest in order to provide an income after death. Some life companies also provide life cover in the form of an income or a combination of a lump sum and an income.
In addition we need severe illness and disability cover so that we are covered in the event of us contracting a severe illness or becoming disabled, surviving, and it having a severe impact on our lives and mobility. For example, if someone were to have a heart attack of two coronary arteries, they would be able to claim from their severe illness cover and would receive between 25- 100% of the cover depending on the severity of the attack and the life company they are insured with. Even though they would be back at work within a month of the attack happening, their life would have been impacted by having the heart attack.
Disability cover pays in the event that we are unable to work or do our nominated occupation, and severe illness covers when a person contracts a severe illness. Each life company defines these events differently and will pay according to their own definitions and the severity of the event, so it is best to make sure you are correctly and adequately covered.
If you are the primary breadwinner, ideally you should have income replacement. Most large corporates offer the cover as part of their benefits, while self-employed people or those working for smaller companies must purchase the cover themselves. An income-replacer replaces the income of the life assured if they become unable to work. The waiting period can be as short as 7 days or as long as 30 days and pays out if the person is permanently or temporarily unable to work, therefore ensuring continuity for his or her dependents.
It is best to review your risk cover annually your personal circumstances, income and needs do change. Life companies also change their benefits and definitions, so it is best to review your risk cover regularly.
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