There’s nothing like discussing life cover,disability cover and writing your will to suddenly make you feel sober and very adult.mandy stratfold makes the tough stuff easy!
Imagine you and your husband both work full time to support your family; you have two small children, a comfortable standard of living, and a few major debts like a home loan, car repayments and a personal loan to pay off.
Sounds ordinary enough. But what would happen to the family if one of you weren’t able to work any more? For most of us, that scenario would be disastrous. Financially, it would mean more debt than income and a severely compromised standard of living.
That’s where disability and life cover come in. Disability cover means that if one of you has an accident and is unable to work, the family won’t lose an entire salary.
Disability income protection is a benefit, which protects a percentage of your monthly salary, which is paid to you each month in the event of an illness or injury that prevents you from earning an income.
Capital disability is a lump sum benefit paid to you in the event of a total and permanent disablement. It is imperative that this cover is related to your specific occupation.
You should try to insure the maximum benefit of 75 percent of your current salary. This benefit will be paid to you if you are unable to work due to an illness or injury — either until the pre-determined policies cease age (normally at retirement age) or until you are able to work again. The amount you insure for should also cover any outstanding debt, in the case of capital disability.
Life cover is a capital lump sum that is paid to your beneficiaries on your death. An advisor will assist you in calculating how much life cover you need based on:
The family’s debt: bonds, car payments, loans and so on.
The family’s monthly income needs. You’ll need to work out a capital lump sum based on the ages of the children, in order to cover their tertiary education.
Add the two amounts together and subtract the family’s current investments; the net value is the life cover to provide for.
It’s also important to consider the effect on the family’s standard of living should either spouse pass away.
A will is your written wish regarding who should be the guardians of your children and how your assets should be distributed in the event of your death. Its importance is often underestimated. You are never too young to make your wishes known.
In the worst-case scenario you and your husband die together, leaving small children. If there is no expressed wish as to who should take care of your children, or how the family’s funds should be distributed (you die intestate), the Master of the Court will appoint an executor who will make decisions regarding guardianship and how funds should be distributed according to the law, which makes for a very long and laborious process.
You may also want to consider a living will. Consider your budget, and how you can put all these important precautions in place. You may have these benefits offered by your employer, but you’ll need to ascertain what your shortfalls are. It is recommended that you determine how much you can afford to spend on a monthly premium, and then split that amount between the cost of life cover and the cost of disability cover to get as much cover as you can afford.
All of these benefits are complex and carry various options, so seek professional advice to choose those that suit you best. Also, try to focus on increasing this as your income increases. In most cases people think about investment policies and saving for their old age (which is good); but it’s important that you think about life cover and disability benefits first, especially if you have children. Do something about it today!