Navigating insurance and investments

WHAT TO CONSIDER FIRST Having just earned your first salary, what are some of the insurance and investment products you should consider?

The range of retirement-saving vehicles includes retirement annuities (RAs), pension funds and provident funds. If you join a company that requires you to join the in-house pension or provident fund, it’s the norm that a part of your salary is allocated to this fund. For everyone else there’s the retirement annuity (RA) option.

These funds can also be used to ‘top up’ your contribution if your company has an in-house fund but you want to save more. This is a tax-efficient way to house excess savings, as you’re able to use the lump-sum amount to reduce your income-tax liability that year. You can only access retirement savings at age 55 unless you become disabled, and your RA contribution must be invested according to Regulation 28 of the Pension Fund Act.

Tax-free savings accounts (TFSAs) were introduced in 2015. Taxpayers can invest R33 000 a year, or R500 000 over a lifetime, in specially-designated funds by asset management companies. Many companies require staff to join a medical scheme. Employer contributions to your scheme are taxed as a benefit. If you must choose your own scheme and option, do thorough research. If you earn less than R12 000, there are some good deals offered by medical schemes offering salary-banded premiums.

Expect to pay R1 000 to R1 500 for a single adult member for an entry-level option. Research medical gap cover.

This can be helpful to pay for expenses not covered by your plan if you must be hospitalised.

If you have dependants, life insurance is a good investment. For everyone else, not so much.

Life insurance policies are structured in different ways: according to the terms, premiums can increase with inflation, and determine how much the insurer is obliged to pay at claim time. Ensure you understand what you’re buying.

If your first job is with a big company, it’s likely that part of your retirement benefit is allocated to a group disability insurance fund.

For everyone else, we strongly recommend you buy an insurance policy that pays a lump-sum benefit if you become disabled or critically ill and are unable to work.

This pays you a monthly income if you’re not able to work due to injury or illness. If your employer gives you three weeks sick leave, an income protection policy wouldn’t be your first priority.

However, if you’re an entrepreneur, or a professional who charges clients per hour, protecting your income is highly recommended.

Peter Nurcombe-Thorne is with the Rosebank Wealth Group