Old Mutual cautions retrenched workers to retain death cover
With an estimated three hundred thousand South Africans expected to be retrenched in 2009, there has been a lot of advice to people who have lost their jobs around the importance of preserving retirement savings. While this is obviously crucial, what’s often not mentioned is the impact that leaving an employer can have on your life cover.
According to Seelan Gobalsamy, Managing Director at Old Mutual Corporate, with an average life expectancy for South Africans of 50.8 years of age (source: 2007/2008 UN Human Development Report), life cover is easily as important as saving for retirement.
“Although we all focus on investment projections, compound interest, and the benefits of starting to save early (which are all important of course), some members unfortunately won’t make it to retirement,” says Gobalsamy. “In fact, a significant number of members joining a retirement fund at age 25 will die before reaching 65. Life cover is not merely nice to have - it is core to a person’s financial plan and could save your loved ones from spending their final years in financial difficulties.
Gobalsamy says that while most employers that offer retirement benefits usually include some level of life cover, when a member leaves a fund (i.e. as a result of changing employer or being retrenched), the life cover will usually fall away.
In these cases, members should investigate the life cover provided by their new employer or fund, or alternatively consider an individual life policy. “Importantly, some funds provide what is known as a ‘conversion option’. This enables members who leave the fund under certain conditions to take out an individual life policy without undergoing a medical examination.”
He says the same consideration should be given to ensuring disability cover remains in place when leaving an employer that offer this type of benefit. Disability cover provides a range of benefits when a person is unable to work due to a disability or critical health event.
Gobalsamy says it is also the responsibility of retirement fund trustees to provide retrenched members with counseling or financial advice to ensure they retain some level of death and disability cover.
"Now, more than ever, it is crucial that employees understand all the options available to them when it comes to their financial situation.
“We recommend that workers facing retrenchment should speak to a financial adviser before making any decisions on what to do with their retirement savings or risk cover. It is important to note that when it comes to financial planning, each individual has his or her own unique set of circumstances. In financial planning it is never true to say that one size fits all," emphasizes Gobalsamy.
He adds that it is also important for employees who are not facing retrenchment to understand their life cover and whether it meets their needs. “Members must not simply expect the cover provided by their fund or employer to be adequate – bear in mind that these benefits are often set in the context of affordability and with a highly diverse membership base.”
Funds offering life cover that varies with age are often touted as the magic answer to this. However, this is often based on the cost of providing cover, with only a loose fit in terms of need. “The bottom line is that your death will affect your loved ones and you cannot afford to shift the responsibility to someone else,” says Gobalsamy. “Where you find your cover to be inadequate, an individual life policy can help fill the gap.”
