This article is the third in a series of six that explores six common mistakes that can negatively impact one’s personal financial situation.
MISTAKE NUMBER THREE: NOT HAVING ENOUGH INSURANCE COVER
The main purpose of insurance cover is to place the insured (or their beneficiaries) in the same financial position as before an unforeseen event. However, if the insured has failed to take out the correct amount of insurance cover, the likelihood of the insured being reinstated to their previous position diminishes.
Whether one is looking at short-term insurance – which covers assets such as a house or car – or long-term insurance – such as life, income or disability insurance – it is imperative that the insured is covered for the correct amount to ensure they are paid out the required amount in the event of a claim.
Life cover is there to provide financially for your dependants in the unfortunate event of your death. When it comes to determining how much life cover is needed for an individual, most companies follow similar financial underwriting requirements, using income and age as a guide.
Generally, the younger the policyholder, the more life cover is needed as they are likely to have younger dependants who will require financial assistance for a longer period of time.
In addition, current income also needs to be taken into account in order for dependants to continue with the same standard of living.
Statistics from a study commissioned by the Association for Savings and Investments South Africa (ASISA) in 2013 revealed that the 13 million South African earners between the ages of 15 and 65 are underinsured by a total R9,3 trillion for life cover, with the average South African being underinsured by R700 000. The association further found that South Africans earning more than R150 000 per year were most critically underinsured.
The impact of underinsurance when it comes to life cover can be devastating for dependants. The last thing you want to do is leave your family struggling financially, or even worse, with the burden of debt, following your death.
Author: Tiffany Boesch CA(SA) is group financial director of PPS