By now most new years’ resolutions are fading into obscurity and no doubt one of the things many people resolved to do was get their finances in order. As we emerge from one of the toughest recessions seen in 30 years, now is the time to give some serious commitment to your financial resolutions for the long term. If there were ever more worthy commitments to stick to, then getting your life, critical illness, disability and income protection cover in place should top your list of priorities.
"There’s a tendency to think that insurance cover such as life, disability and critical illness can be sorted out ‘later’, and many people even avoid the issue completely because they think it is too complicated, or even unnecessary. The 2010 Life and Disability Insurance Gap Study asserts the fact that South Africans remain seriously underinsured. Sadly, it’s the families of the un- or under-insured that end up paying for it by suffering financially in the event of the death of their loved one, or from the repercussions of the onerous financial obligations, care requirements and costs after an accident, illness or disability,” explains Craig Harding, Managing Director of Altrisk.
There’s no time like the present to speak to your professional financial advisor about your long term financial security and planning. Altrisk asked Gregg Sneddon, an independent financial advisor, for some advice that you should be taking up sooner rather than later...
1. Get professional advice and planning from...well…a professional!
“Watch out for the direct insurance companies. They claim to cut out the middleman and as a consequence they claim to be cheaper. My experience shows that this is not always the case and that they end up being significantly more expensive than the traditional insurers even at full commission,” says Gregg. “There is so much common sense involved that just about anyone with reasonable intelligence and some time and effort could do their own financial planning.
However, to my mind, doing your own financial planning could be likened to fixing the plumbing at home. Anyone could probably do their own given an instruction book, the correct tools and the time. But you will probably spend three times longer than the qualified plumber who will also get it right the first time. And so it is with financial planning. Partly as a result of the DIY approach there has been a proliferation of "direct" insurance companies that have sprung up over recent years encouraging people to go direct, to cut out the middleman, to save on commissions and fees and, while this all sounds very attractive it is, in my experience, hardly ever true.
“So let the old warning apply: Caveat emptor - Let the buyer beware. My advice - find an advisor/planner who can supply you with the product you need without the commission costed into it and pay him a fee for the work that he does for you.
2. Understand the need for life insurance
“Life insurance is not an investment – it only pays when you die so make sure you really need the amount of life cover that you have. Life insurance is there to cover a financial risk that you can’t afford or are not prepared to take. Make sure that you understand the risk and the role that life insurance will play and balance this against your specific needs. People often have excessive life insurance which will benefit their beneficiaries when they die, but their retirement funding and investment is sorely lacking. It’s about balance and understanding the financial needs of your family or dependents should you die while having peace of mind knowing there’s enough for a secure retirement.
3. Check that your beneficiary and cession information is up to date
When we die, the proceeds of our insurance policies go directly to the nominated beneficiaries– there are no executor’s fees on them so they save 3.99%. Failure to make sure that the beneficiaries are current could mean that the money could go to the wrong people – like a philandering ex-husband or ex-girlfriend! And this would mean that your real dependents are left with nothing. If you ceded a policy to the bank against your bond and the cession has been cancelled, make sure that you confirm your beneficiaries and nominate new beneficiaries as required. Also make sure that you understand how the insurer will handle the payment if there is a claim with a cession in place – will the “surplus” after the claim by the cessionary go directly to your nominated beneficiaries or into your estate?
4. What about critical illness and disability cover?
Statistically the probability of becoming disabled during your working life is about 13%. For the average 40 year old, the chance of contracting a life-changing critical illness by the age of 75 is much higher at about 55% for men and 37% for women. So while the probabilities may be in your favour, the financial consequences if it does happen are potentially devastating. Make sure that you understand these consequences and that you have a plan if either of these were to happen to you - insurance is a cost-effective way to manage the risk.
5. I’m young and healthy, do I really need critical illness cover and how much is enough?
At the very least, make sure that you are on a medical aid or good hospital plan that will cover you for some of the in-hospital expenses that will be incurred should you contract a critical illness. If you are still concerned, and particularly if you have a family history and hence predisposition to a dread disease, it’s a good idea to get critical illness cover. But as with all things financial, be pragmatic about it – take what you can afford rather than take nothing at all. The amount you need to take will always depend on your own personal circumstances,” concludes Gregg.
All the above pointers support the need for sound and practical insurance advice. “Critical illness, disability and life policies do vary and it can take an experienced eye to evaluate the best policy for your circumstances and pocket. Consulting with a professional advisor is your best shot at protecting you and your family's future. Whether you take cover to protect your income and financial obligations, or to leave a legacy and lifestyle security for your loved ones make the resolution to get covered,” concludes Craig Harding of Altrisk.