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Category Life Insurance

Do I need long term insurance if I’m young and healthy?

16 October 2012 Altrisk
Andre Froneman, product specialist at Altrisk

Andre Froneman, product specialist at Altrisk

It’s a reasonable question to ask, especially if you’re relatively liability free and don’t have dependants to look after yet. But, the answer, of course, is a resounding yes, you do!

According to Altrisk, voted the 2012 Long Term Insurer of the Year – Risk Products, your chances of contracting a critical illness or dying prematurely are relatively low while youth is on your side. But while there is a lower risk of contracting a life changing illness before age 40, disability is a whole different ball game for young people. In fact, an analysis of Altrisk’s claims by men for the period May 2011 to May 2012 indicates that 13% of the men making disability claims were younger than 30, and 27% were between 31 and 40.

“You’re never too young to insure your most valuable asset – your ability to earn an income. Many young people grapple with the question of when to take out disability cover. Unfortunately, most leave their financial planning too late,” says Andre Froneman, product specialist at Altrisk.

According to the National Association of Insurance Commissioners in the US, people in their 20s and 30s are three times more likely to become disabled than die. But will you and your family be in a position to provide financially for ongoing healthcare, therapy and the other lifestyle changes that may come with a disability? Probably not – which is why the real challenge in surviving a disability, is being able to provide a future income for yourself. Because not having cover in place to deal with the financial impact of being disabled or sick for a prolonged period during your most productive work years can be devastating.

“When guiding young adults at the start of their financial journey, I liken effective financial planning to building a home. Most people dream of building a multi-story mansion and there is nothing wrong with that, if the foundation is solid enough to support the structure. Your risk insurance is your foundation, so make sure that you take care of this first and that you do it in a way that provides effective financial protection against any eventuality,” explains Rafieq Saville, experienced financial planner and founder of Professional Financial Solutions – which services a substantial ‘younger’ client base.

There’s a tendency to think that disability cover is something you worry about when you’re older - not when you’re in your 20s and filled with the joys of life. But the reality is that the sooner you consider risk cover, the better. It’s a fact that the cost of insurance products increase as you get older. If you’re unlucky and suffer poor health or a debilitating accident before applying for cover, the cost will be significantly higher. In certain scenarios, cover may exclude pre-existing conditions entirely. This means that you won’t get cover for any claims that are directly related to the excluded conditions.

“No-one particularly enjoys contemplating their mortality or morbidity, but the reality is that we tend to have less savings and more expenses when we are young and building our asset base. It’s essential to understand the financial consequences if you have to face the ‘worst case scenario’. Developing a financial plan to implement in case of a health crisis is best done with the help of a professional financial advisor. If you choose wisely, this is a partnership that could extend well into your old age,” says Andre.

Rafieq offers the following advice: “While the average young person with no dependants might not have any major outstanding debt in the form of a bond, they’re still likely to have day-to-day living expenses. Their first priority should therefore be disability cover. Lump sum cover provides for immediate expenses and an income replacement benefit covers your salary. Should you take ill or be involved in an accident that could lay you off work for an extended period of time, or even permanently, this cover is invaluable. Being young is no reason to not plan for any future eventualities. In fact, if you’re unlucky and suffer poor health and don’t have this cover in place, you may not be able to get cover afterwards.”

Andre Froneman of Altrisk concludes: “The reality is that you do need cover when you are younger. This is the most productive time of your life, when you are most reliant on your income to meet financial obligations, take care of your growing family and secure a comfortable future. Buy early in your career as it is not only the time when you need it most, but also the time when insurance premiums are most affordable.”

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