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VIEWPOINT: INSURANCE BENEFITS, Updating benefits with earnings

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One of the first and most important things you should be doing when you receive a pay increase is to review your insurance needs and add any insurance cover that is missing.

People are quick to purchase lifestyle goods but soon forget that they can only afford these luxuries for as long as they are able to earn the income to pay for them.

Having sufficient insurance (life cover, income protection, dread disease and disability) to protect this and to afford you or your dependants the opportunity to continue enjoying these benefits, should be key.

The best way to ensure that you are sufficiently covered is by having a financial need analysis (FNA) conducted by a qualified adviser. During this annual review, you can take stock of the following: income; assets and liabilities; insurance benefits aligned to your income as you wouldn’t want to receive less benefits; and financial goals.

Another key consideration when looking at finances is inflation. Owing to inflation, the amount of insurance cover you buy today will not be worth the same amount in a year or ten years’ time.

By buying additional cover every year, in line with your income, this can help to reduce the effects of inflation. Benefits may be aligned in one of two ways:

  • Purchase new or additional insurance benefits: This may be subject to medical and financial underwriting, and your current health status, age, and lifestyle may influence the premium that you will pay.
  • Taking advantage of the annual declared benefits on an existing policy: This may be free from medical underwriting, so even if your health has changed or deteriorated your benefits can still be aligned to an increase in your salary.

The purpose of insurance is to provide protection for yourself and your family (especially young dependants). So next time you get that salary increase, think twice about how you are going to spend the extra cash in your pocket.

Author: Tiffany Boesch CA(SA) is group financial director of PPS

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