Don't leave your family underinsured

Shock at Eskom’s proposed tariff hike, which would see an average family’s monthly electricity bill soar from about R760 to R3 000 by 2012, has highlighted just how quickly finances can change. It is therefore important that the insured regularly review their finances to ensure their families will be properly looked after in the event of anything happening to them.

According to Chris de Klerk, Corporate Actuary at PPS Insurance, few South Africans actually do have adequate life and disability cover in place. “Most South Africans feel that death or disability is something that happens to other people and therefore don’t sufficiently prepare for such an eventuality, which could leave their loved ones in financial straits, should the worst happen.”

The Insurance Gap Study, published by the Life Offices’ Association (LOA) last year, found that South African families are short by around R10-trillion in life and disability insurance cover. The study said that in order to close the insurance gap, the average South African would have to increase premiums by between R1 330 and R2 322 a year.

De Klerk says it is ironic that people tend to take out more comprehensive insurance coverage as they get older but those that are just starting out or have young families are often far less likely to have sufficient cover in place.

“If you have a young family, then the cost of supporting them for the next 10 to 15 years is very high. This is made harder by the fact that at this age, most people have not accumulated a substantial asset base from which their families could benefit and draw on. You might think an insurance payout of R2 or R3-million is quite a large lump sum, but when you take into account all of your expenses such as bond repayments, tuition fees, travel and medical aid, you realise how much you actually need.”

De Klerk believes it’s worth taking the time to sit down with your broker at least once a year, preferably before the holiday season, when there is a spike in the number of injuries and deaths. It’s also a good idea to get into a frame of mind of reviewing your finances each time you have a major life event, such as getting married, having children or even getting a job promotion.”

De Klerk also urges people to ensure their policies increase each year in line with inflation. “There are a lot of policies out there that don’t account for inflation, which means that in the event of a claim, the payout is the same as it was 10 years ago. While R1-million cover may have been suitable in 1999, changing circumstances and inflation means it is unlikely to be sufficient now.”

The coverage provided by PPS Insurance products is automatically increased every year above inflation, which means that even if you choose not to review your finances, your policy will at least keep up with inflation.

“There is no simple formula to work out the correct amount of coverage as people’s circumstances differ greatly. However, young professionals should speak to their financial adviser to get qualified advice on the right amount of cover for themselves or their family,” says de Klerk.