Everything is okay until it isn’t. When we’re in good health with a stable income and a fulfilling professional career, it’s tempting to think that nothing could possibly go wrong. But if Covid-19 has taught us anything, it’s that a lot can go wrong quickly. We simply can’t predict when a life-changing event like cancer, disability, let alone a disease we haven’t seen yet like Covid-19, will affect our ability to earn an income and provide for our dependents.

Perhaps most visible in the affluent and high net worth market, having the right life insurance in place can protect your wealth from creditors and estate duties, preserve your lifestyle when faced with a severe illness or disability, and give you access to critical care when you need it most. 

The ability to keep servicing your debts and meeting your responsibilities without having to downscale your standard of living is an essential part of planning for the future. 

Our research consistently shows that one person is rarely just one person. Which is to say, a major illness doesn’t only affect the person who has it but changes the dynamics of financial support in the family. Even among younger professionals who haven’t yet started an immediate family, 40% still financially support their parents or siblings. As their lifestages change and they start their immediate families, they may become double or triple providers, supporting parents, siblings and their own children.
 
Rather than being a single product, life insurance is a combination of benefits – it’s not only about the death benefits that payout when you die, but also about the living benefits that support you through illness or disability. There’s some overlap, but each product pays out when specific events or conditions happen in your life. You also don’t need to take out every product all at once, or even at all. Among the basket of insurance costs, actual life cover alone is often the most affordable. 

Life cover: Protects those you leave behind

Life cover is the simplest product to understand. It pays out to your nominated beneficiary when you die, usually a family member. This helps your family settle debts, replace the income they’ve lost, pay estate duty costs and capital gains tax, and settle executor fees. Most financial planners suggest life cover of between 12 and 20 times your annual salary, but this depends on your lifestage and how many people rely on you for financial support. 

Severe illness cover: Helps you manage a life-changing diagnosis

Severe illness cover is a living benefit that pays out a lump sum when you’re diagnosed with a condition like cancer, stroke or a heart attack. It’s easy to dismiss this kind of cover because many assume their medical aid will cover all their expenses. But most medical aids have carefully defined sub-limits, after which you’re required to co-pay.
 
Depending on the plan you’re on, you may also need to self-fund certain types of advanced or progressive treatments that aren’t part of a prescribed minimum benefit. You may also need time off work to recover; just because you’re out of the office doesn’t mean your expenses stop. Severe illness cover gives you the capital boost you need to cover these situations. You’re usually paid out a percentage of your cover value based on the severity of your condition. 

Disability cover: A lump sum payment for additional support

If you’re ill or have an injury that results in you being deemed permanently disabled, disability cover gives you a lump sum payout to help you adjust to a new way of living. You can use it to settle your debts or make adjustments to your home so you can get around more easily. Disabilities related to all major anatomical systems are covered and, like severe illness cover, the payout is generally based on the severity of the disability. 

Income protection: Paying you an income when you’re unable to earn

Arguably the most critical living benefit is income protection. If you’re off work or can’t perform your occupational duties because of a temporary or permanent illness or injury, income protection will pay up to 100% of your net of tax income. It will effectively pay you a salary until you turn 65 (or 70, if you choose), replacing a potential lifetime’s worth of earnings. Income protection kicks in after a waiting period, usually one month or three months.

About the author: Sinenhlanhla Nzama is Investec Life's Head Product Actuary