In this episode of the My Money, My Lifestyle podcast, I facilitated a spirited debate between financial planners Henri le Grange and Ben Nel about the complexities of choosing the right insurance cover.

What I learnt from the discussion is that there is no right or wrong answer – it all depends on your personal circumstances. The most important thing is to know why you have the cover in the first place.

As Henri commented, “if ​you ​have ​any ​financial ​product that you cannot ​explain ​to ​your ​partner ​or ​​to ​your ​friend ​why ​you ​have ​it, ​you ​should ​not ​have ​it.”

Insurance must make sense to the individual

Both Henri and Ben agreed that insurance decisions should never begin with products but with a comprehensive understanding of individual circumstances. There is no one-size-fits-all approach; insurance choices must align with personal aspirations, financial goals, and life stages.

For a younger person starting a familiy or managing substantial debt (such as a mortgage), income protection and life cover may be most relevant.

But an entirely different cover strategy may be required for someone older who is approaching retirement, who has accumulated wealth and doesn’t have so many liabilities.

So a thorough financial needs analysis needs to be conducted before any specific products can be considered.

It is also about personal choice. Some people prioritise maintaining their current standard of living during illness, while others focus on leaving a financial legacy for their heirs. Understanding what matters most to you is crucial for selecting the right cover.

Understanding premium patterns

One of the most contentious topics in the discussion centred on premium structures, particularly the difference between age-rated and level premiums.

Age-rated premiums start attractively low but increase substantially over time, especially after age 50. While initially appealing to younger buyers, these policies can become financially crushing during retirement when individuals are most vulnerable to health risks.

Level premiums, though costlier upfront, provide long-term stability and predictability. The planners strongly recommended avoiding age-rated policies unless there’s a concrete plan to transition to level premiums within a short timeframe.

Another important consideration is escalating cover, where cover increases annually to keep pace with inflation. While this might seem prudent, the compounding effect can cause costs to rise disproportionately over time. For finite liabilities, such as a mortgage, static premiums with fixed cover may be more cost-effective than automatic escalations.

Term vs whole-life insurance

The most heated debate was the choice between term and whole-life insurance. Opting for a term policy, where you insure only for a specific period of time, rather than for your entire life, is a way of reducing costs.

Term insurance can provide substantial cover for specific periods at lower costs, making it ideal for people who only want to have insurance for the kids until they leave home or for those who are actively building wealth and may not need life cover in the future.

But Henri countered with arguments favouring whole-life insurance, particularly for its lifetime cover guarantee and legacy planning benefits.

He emphasised that whole-life policies ensure protection when it is most needed, regardless of changing health circumstances or advancing age. A level-premium whole-life policy provides predictability and can serve as a vehicle for intergenerational wealth transfer.

The disagreement highlights an important truth: both approaches have merit; the right one for you will depend on your individual circumstances. Term insurance suits those planning to become financially self-sufficient, while whole-life insurance benefits those prioritising estate planning and legacy creation.

The advice both planners give to retirees who have whole-life insurance is that their children can take over paying the premiums once the parents retire – there is no better investment return than on that life policy.

Insuring for estate costs

Life cover is a key consideration for estate planning, particularly for individuals with substantial assets or complex financial structures. Life insurance can provide crucial liquidity to cover estate taxes, executor fees, and administrative costs without forcing heirs to sell assets or deplete the estate.

There are specialised products that offer cover tailored specifically for estate winding-up costs. However, such products might lead to overpayment if estate liabilities decrease over time without policy adjustments.

For business owners or those with family farms, whole-life insurance can ensure that these assets remain intact for the next generation by providing liquidity for taxes and transition costs.

We also discussed the pros and cons of self-insurance through building sufficient liquid assets. While this approach suits financially disciplined individuals, life insurance often remains more cost-efficient for safeguarding estate liquidity needs.

Critical illness cover: protection or complexity?

Critical illness cover sparked another significant debate. While expensive, this cover provides financial cushioning during severe health crises such as cancer, strokes, or heart attacks.

Henri highlighted the rising number of severe illness claims among individuals aged 40-55, however, Ben expressed concerns about the complexity of critical illness payouts – most benefits are based on severity scales and you may not be paid the full amount you are insured for.

As an alternative, he advocated focusing on income protection, which provides steady ongoing payments while you are recovering from an illness rather than lump-sum payouts with stringent criteria.

The level of critical illness cover should reflect personal preferences and circumstances. Some clients want sufficient cover to leave work and spend time with family during illness, while others prefer minimal cover to address basic medical expenses.

Make informed decisions

The podcast discussion highlights what I have always believed: insurance works best when integrated into a comprehensive financial plan.

You should work with an adviser who can balance insurance needs with other financial priorities, such as retirement savings and wealth building.

Henri and Ben agreed that insurance should never be viewed as an investment. Its purpose is protection against financial risks. You should regularly review your cover to ensure that it remains aligned with your changing circumstances and evolving financial goals.

Key questions to ask your adviser

• How does this policy fit into my overall financial plan?
• Are there hidden costs or escalating premiums?
• What are the specific payout criteria for different types of cover?