“If your compassion does not include yourself, it is incomplete.” (Jack Kornfield)
There’s a common question financial advisers get asked when discussing life insurance: “Why should I give up some of my income when I am alive so that my family can be rich when I am dead?”
It’s more than just a provocative enquiry, though. It’s a useful way to start a conversation about the true purpose of insuring your most valuable asset: yourself.
Risk cover, encompassing life insurance, disability insurance, and critical illness cover, is not just about providing for your family after your death. It’s also about protecting yourself and your loved ones from the financial fallout of life-altering events while you are still alive.
Life insurance: A safety net for your loved ones
At its core, life insurance is there to replace your income and support your family financially in the event of your death. But it’s easy to underestimate how much income a seemingly large payout represents.
A R10 million insurance payout might sound like a lot. But it would only generate around R45,000 per month in sustainable income. For many families, this might not fully replace the income of the deceased breadwinner. The point is: this is not about making your family rich. It’s really about ensuring they are not left financially destitute.
It’s also important to consider other ways life insurance can make things easier for others if you were to pass away. An entrepreneur who takes out life cover through his business would provide a payout that would allow his partners to buy his shares and settle outstanding debts. Without this, the business could face significant financial hardship and even potential closure.
Disability insurance: Protecting your ability to earn
A second critical component of personal risk cover is disability insurance. This often gets overlooked but can be even more important than life cover. Having disability insurance ensures you receive an income if you are unable to work due to an accident or illness. It can be structured in the form of a lump sum payment, income protection, or both.
Consider the case of a self-employed small business owner and single mother who is diagnosed with cancer. Due to both the illness and the treatment, she is unable to perform her full occupational duties. An income protection policy would however pay her a monthly amount during her recovery period. Even after returning to work, she may still be eligible for a portion of her cover amount if she is not yet at full earning capacity.
This income allows her to reduce her workload, focus on her health, and maintain financial stability for her family.
Disability insurance is most definitely not about someone else “getting rich”. It’s about ensuring that life doesn’t grind to a halt when unforeseen circumstances impact your ability to earn.
Critical illness cover: A buffer against life-altering events
Critical illness is the third component of risk cover. It provides a lump sum payout upon the diagnosis of a severe illness, such as cancer, heart disease, or a stroke. This payout is commonly used to cover medical expenses not paid by medical aid or to fund lifestyle adjustments.
Without this cover, you’ll be left dealing with major financial strain on top of the significant emotional and physical toll caused by the illness.
Risk cover: A comprehensive shield
Life insurance, disability cover, and critical illness insurance together form a comprehensive financial shield. Each serves a unique purpose, but all share a common goal: to protect you and your loved ones from financial hardship in times of crisis.
This protection goes beyond just “leaving something behind” when you’re gone. It’s about ensuring that you can maintain your quality of life during challenging times and providing your family with stability and peace of mind, regardless of what life throws your way.
The idea that risk cover is about making your family rich at your expense couldn’t be more wrong. Risk cover is not simply an expense; it’s an investment in financial security. It ensures that you and your loved ones can weather the storms of life without facing financial ruin.
When structured correctly, risk cover can also be affordable and tailored to your specific needs. The key is to work with a financial advisor who understands your unique circumstances and can recommend the right mix of cover for you.
To discuss your risk cover needs, speak to us.
Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact us for specific and detailed advice.
© FinDotNews