Insurance is big business and there are financial products that cover just about everything. But how do you establish which financial products are absolutely necessary or whether what you have is enough? The latest unemployment statistics from Statistics South Africa have revealed that the current unemployment rate in the country stands at 29%, the highest in 11 years. This, along with President Cyril Ramaphosa’s recent prediction that more jobs are bound to be lost due to technology, globalisation, climate change and other economic challenges, forces South Africans to take stock of their current financial situation, in a bid to maintain some control in the future.
Insurance experts believe that it is important to have balanced cover, with medical aid, life cover, funeral cover, home insurance and car insurance regarded as top priorities. African Unity founder and Executive Director, Herman Lombard urges consumers to consider all their financial products together to calculate the cost, compare the benefits and to identify gaps or overlaps, by taking the time to do a financial needs analysis with every major change in your life. “In order to secure your family’s financial well-being, you need to have sufficient life and health insurance, funeral cover, dread disease and disability insurance,” he advises. “You need this to ensure that you are protected against any eventuality, so start with the policies that cover the most important bases. Once those are in place, you can extend and consider other insurance types. This will also help you identify which insurance policies don’t fit your financial plan.”
“You need to make sure that you are not under-insured or over-insured. Being under-insured leaves your family vulnerable, should anything happen to you. Yet at the same time, being over-insured will have you spending money on something you don’t need.” Lombard says that people should evaluate their financial standing at every stage of their lives, from their first job, to the period where they settle down and start a family, prepare for retirement and once they have reached their golden years.
Single and at the start of your career
“Being financially savvy and stable takes some effort, but if you work wisely from the get-go, striving towards a secure financial future will run a lot smoother, he explains. Seek financial advice from a professional who will help you choose the policies you need, like income protection, car insurance, medical aid and a retirement annuity. It’s a good idea to develop a healthy attitude towards saving at an early stage, as this will stay with you for the rest of your life. At this stage you would probably be looking at acquiring your first property and doing some traveling, so your financial adviser should guide you around a starting an investment portfolio.”
Settling down and starting a family
“You are bound to experience a total financial shake-up, the minute you decide to get married. You and your partner should be researching different options for life insurance and home insurance if you’ve just bought a home together. As you will likely be starting a family, you need to make sure you have sufficient medical aid cover since having children is expensive, and costs can be unpredictable. You’ll also have to plan for your child’s education from the time he or she is born.”
“By the time you’re in your forties, you should be taking stock of how much work still needs to go into having a comfortable retirement,” Lombard says. “This is a great time to adjust your cover, as you may be earning a lot more. Check up on your funeral cover, household and building insurance as well. While there are people who consider retiring by the age of 55, it may be better to continue working towards bolstering your retirement funds and any home improvements or changes you may need, before you stop earning an income. This will allow you to enjoy a leisurely retirement.”
“Ageing is, unfortunately, also often accompanied by ailments and illness. It would be wise to consult your financial advisor about your investment portfolio to make sure that your medical aid sufficiently covers you against illnesses so that you won’t have to touch your retirement funds to pay for medical expenses,” he adds. According to Lombard, many people waste millions on policies that overlap or double up on cover. He says that having double cover does not necessarily mean you will be paid out twice for a claim – therefore spending extra for this is a waste of money.
So, before you take out extra cover, do your homework on the following:
1. Home loan life cover
Standard life insurance policies usually pay out the benefit to the beneficiary and this can be used for settling the outstanding balance. It may, therefore, not be worth spending money on home loan life cover.
2. Additional health cover
Insurance cover for illnesses like cancer is seen as important for most people. It is obvious that treatment like chemotherapy is expensive, but some experts advise against taking out extra coverage, since most medical aids actually cover treatment for the disease. Check with your insurer or financial advisor whether this is necessary.
3. Travel insurance
Before taking out travel insurance, examine the health and life policies you have, to find out how accidents and injuries during your travels or missed flights are covered. Life insurance policies usually cover the insured, in the event of a fatality while traveling. Travel protection is also sometimes available if you are using your credit card for booking your travel, so check with your bank and travel agent.
Lombard says that a financial needs analysis, which can be done by a qualified financial planner, is helpful when taking stock of your financial profile, as the country faces economic uncertainty. “It will give you an overview of what you have and whether you fall short of any cover. You’ll be able to scrutinise your current situation, identify areas that need to be streamlined and set goals for where you need to be in terms of retirement, income protection, education funds and other goals you wish to achieve,” he concludes.