The Herald (South Africa)

Dismiss risk cover at your peril

- Stephan Steinmann – Stephan Steinmann is a fully licensed financial adviser at Edge Financial Group.

DURING consultati­ons, I am often asked about risk cover (life, disability, severe illness and income protection) and why it is so important. There are many negative connotatio­ns associated with the various types of cover: Life cover: Will essentiall­y pay a cash value out in the event of your death. Disability cover: This can be temporary or permanent disability and will pay a lump sum in the event of your temporary or permanent disability. Severe illness cover: Similar to disability cover, this will pay a lump sum based on the severity of your temporary or permanent severe illness.

Income continuati­on: The only cover that pays out a monthly income amount in the event of temporary or permanent disability or illness. In effect it pays an amount up to a maximum of 75% of your monthly income.

Risk cover is often classed as a grudge purchase. However, I always recall one of my very first clients.

The client was young, married and had a four-year-old daughter. His wife was a home executive and their income was moderate according to their age.

The meeting was initiated to mainly discuss alternativ­e investment options. However, during our initial meeting I noted that the client had no life, disability, or severe illness cover.

Being fresh out of varsity, I applied the basic principles of financial planning, and I made the client aware of the potential shortcomin­gs should one of these risk events ever occur.

Not too fazed, the client responded quickly and said he was not there to discuss risk cover and that he was more interested in investment­s.

The next day he phoned me to apologise, as he realised the importance of what we discussed.

I met him later that day to complete the applicatio­n form for the risk cover.

We also decided to place the investment on the back burner until the risk cover was fully implemente­d (on October 1).

On Christmas Day that same year, I received a call from his father informing me that his son had been diagnosed with a very aggressive cancer.

Unfortunat­ely, my client died after putting up a brave fight for six months.

However, his hospital bills were paid for, his daughter’s education is assured, his wife is debt-free and fully owns their beautiful home, and she will receive an income for 10 years to ease the transition.

Risk cover matters – not only on assets and liabilitie­s but also to the people you love.

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