05/11/2014
Life is dynamic and changes over time, it can include anything from marriage to children, career changes, and assuming that you don’t have to review your insurance needs, is a dangerous misconception. This assumption can negatively affect you or your family financially in the long term if you suddenly had to pass away, or be unable to earn an income due to illness or injury. We discusss six guidelines that benchmark major life changes which should prompt you to review your life insurance policy:
1. Your income has changed
Life insurance is essentially there to replace your income if you pass away, so if your salary has increased significantly since you took out your policy, then your spending habits have probably changed and you need to re-evaluate your life insurance policy to ensure the benefits and amount of cover will keep your loved ones financially stable. These include paying off debts, providing a replacement for income and ensuring your family has what they need for a future if you are no longer around.
On the other hand, if you have experienced a drop in income recently, then you can save money by reviewing your life insurance cover and identify ways in which you can optimise it, in line with your changing budget.
2. Your family has grown
If you are expecting a child, you will soon begin to feel enormous pressure to provide for him/her. It’s extremely important to sit down and ask tough questions like, “what happens if I die and my wife/husband is left with the children and the bond to pay off?”, “who will provide for my children if I pass away?” If your children are older, you are probably wondering more about university fees. With these thoughts in mind, you may need to review your life insurance policy so that should something happen to you, your children will be financially protected.
3. Your housing status changed
Once you own property, it is important that you insure the physical property and assets against damage. However, that is not the only insurance you need. When purchasing a house through the bank, many of them insist on life insurance when you apply for a loan, as a means to protect their investment in you. This life cover also ensures that your family is not left with the burden of paying a home loan they can’t afford – should anything happen to you. If you share your home with anyone who relies on your income to help pay the bond, you will need life insurance that specifies that person as a beneficiary, so he or she won’t lose the house if you pass away unexpectedly.
4. You’ve got married or divorced
Once you get married, your combined income replacement needs may also change. For example, if you each owned a home with a loan while you were single, after marriage you may choose to sell one or both of the houses to purchase a new house that may be more expensive, but with your new dual income, is possible to afford. That leaves you with more debt to pay off if one of you dies, and your salary alone won’t be sufficient to keep repaying the bond, which will need to be factored into a policy. If you are divorced, you may not have the big house and debts that need to be taken care of, or you may wish to change the beneficiaries of your policies.
5. Your beneficiaries may have changed
This may also be linked to your marital status, as listing your spouse as your beneficiary or removing an ex-spouse is important. Recently, acclaimed actor, Phillip Seymour Hoffman passed away and his story was extensively followed in the media, due to the unfortunate circumstances of his death. However, even more interest was placed on the fact that he had not updated his will and estate plans since 2004. Hoffman had two children born after 2004, which meant that the will would essentially only provide for one of his three children. This brings to light the fact that children from previous marriages or relationships can be at risk of not getting the proper consideration if someone they depend on, hasn’t clearly updated their beneficiaries.
6. Retirement may be on the horizon
Put a plan in place that helps you set goals for retirement, which takes your current lifestyle into account as well the age at which you would like to ideally retire. It’s important to note that the life expectancy of the average South African has increased, due to advances in medical technology and other factors. It is a myth to think that your expenses will decrease continuously until you die, in fact they may increase as your dependence on medical advances increase. How much you need to save is based on variables such as your age and lifestyle.
In addition to this, remember that your lifestyle will change and you must take into consideration which expenses will increase and which ones will decrease after you retire. With children out of the nest, education expenses will vanish, clothing expenses will reduce as will certain taxes. However, these will be replaced by other lifestyle, travel and recreational expenses – because you will hopefully have more time on your hands. Ensuring that you have made provision for retirement places you in a significant position to keep living as you were before you retired – or at least close to that.
