Young, fit and uninsured

HEALTH COVER: IT’S BEST TO PLAN FOR THE WORST AND MEET YOUR OBJECTIVES

Johannes Burger, private client adviser at Autus Private Clients, advises a reader about dread disease and disability cover.

Question: I am 30 with no dependants and earn R30 000 a month at a company that offers no additional benefits. I have a pension fund and medical aid, but do I need dread disease and disability cover and income protection? A premium of R750 a month will only provide me with about R1 million in cover. Should I not rather invest the money in shares or a unit trust?

Answer: Financial planning is a creative process with no universal solution or formula that works for all. You have to formulate a solution that addresses your unique needs by putting all your cards on the table with a trusted financial adviser.

Aiming to be in a position at age 65 where you will be able to stop working and continue earning your present income is a healthy starting objective.

Assuming then that you are starting from scratch, if you invest about R4 000 per month and escalate these contributions annually by 10%, you should be able to reach your goal.

You mention that you have a pension fund. If your contributions allocated to this retirement fund (specifically excluding administration and other fees) don’t add up to R4 000 per month, you already know that you have a shortfall.

Implementing this seems straightforward, but what if you lose your job, become ill, or lose your ability to generate the income?

Acknowledging these risks will enable you to realise that you need to plan for the worst, and hope for the best.

Logically, it is sensible to ensure you have income protection cover that will replace your income on a temporary and/or permanent basis if you become unable to perform the duties of your job. Ensure that the selected cover amount covers all your monthly expenses.

I have no urgency with which to encourage you to apply for life cover. Just remember that your insurability is not a guarantee and that it is advisable to apply for life cover while you are young and healthy.

Dread disease and disability cover are both lump sum benefits that I think you should have. I recommend dread disease cover for the simple reason that we are all at risk of contracting a severe illness.

If you have a proper medical aid, I would not recommend more than R360 000 of cover (1 x annual salary). Ensure that you select a comprehensive benefit from a reputable insurer and that the product covers your whole life. A cheaper option will let the benefit cease at 65.

Consider applying for R720 000 of disability cover (2 x annual salary), plus the total of your debts. This benefit pays out in the event of permanent disability and is intended to cover immediate capital expenditure as a result of the event. Ensure you understand the finer details of the product selected, and do not merely grab the cheapest solution. A cheap benefit is cheap for a reason.