Insurance: protect your future income

Episode 4 of the Change In your Pocket series deals with protecting your biggest asset: your future income.

– Video supplied by BrightRock

Welcome to The Change Exchange, where we are helping you find ways to make the most of out of your paycheque.

While things like short-term insurance, medical aid and disability cover don’t sound like savings, they’re actually a very important part of a savings strategy because they prevent your savings from being wiped out by unexpected events.

When you start working, your biggest asset is actually your future income. A lot of younger people think that because they don’t have a family or they don’t have debt, that they don’t need to take out insurance, yet at this age, your biggest risk is not death – it is not being able to work due to disability or illness.

The best kind of insurance product is one that is flexible and grows as you do. The needs of a 25-year-old differ from those of a 40-year-old or a 60-year-old. You don’t necessarily want to have to take out new insurance policies every time you have a life event.

Many insurance providers offer things like future cover, where you are able to significantly increase your insurance cover at a later stage without underwriting (ie, medical questions).

If you are young with no dependents, your biggest risk is that you are unable to work. At this stage, critical illness, disability and income protection are important. You also want the ability to take out life cover at a later stage should your situation change.

Once you have financial dependents – whether they are your children, parents or a spouse – you need to have life insurance that will provide for them if you die. If you buy any asset, be it a house or car, you will have to take out life insurance to settle the debt in the event of your death, but remember you have the right to shop around for the best deal.

The best way to assess your needs is to look at the monthly expenses you need to cover, and for how long. A good adviser will approach your insurance needs based on your monthly expenses so although you are insuring for lump-sum payout, it translates into a monthly income.

For example I calculated how much income would be required each month to provide for my children until they each turned 25. I was then able to purchase cover for this specific need. It also meant that I only bought this cover for the next 16 years by which time my youngest will be 25 and the cover would no longer be necessary. This resulted in a significant premium saving, as most cover is bought “for life” even though you may not need it if your needs change.

When it comes to funeral cover, there are several bank accounts which include this cover as part of their “value-added” service so it’s worth finding out if your bank account has this benefit.

Also keep a list of your policies with all of the relevant contact information. Many people don’t claim from their retrenchment, disability cover or funeral cover, because they don’t know about it or don’t know how to claim.

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