With the rush of everyday life, people rarely consider what would happen to their spouses if they suddenly passed away. It’s impossible to anticipate when this might happen and, therefore, it’s crucial to plan ahead. “The passing of a loved one is not an easy event to contemplate,” said Joe Ekstein, head of iWYZE Life.

“It’s important to understand that no amount of money can replace the absence of a spouse. So when calculating how much cover is required we consider only the absence of the financial income that goes with the passing of a spouse,” he added.

Ekstein suggests that the following is answered of the life cover provider:

  • How much would my spouse need to maintain our current standard of living when I am no longer around?
  • What is my current income and how much of that would still be required after my passing?
  • What are the total expenses that would still need to be paid or settled when I pass away?
  • For how many years would my spouse require this additional income?
  • What other savings and investments would my spouse have access to supplement the loss of income?

Travys Wilkins, director of Noble Wealth Financial Services, additionally emphasises that ‘no size fits all’.

“Ideally, your cover amount should ensure that both you and your spouse’s debts are covered, that the monthly income requirement for dependents, as well as any capital (lump sum) requirements are met, and that liquidity in the deceased’s estate is provided for,” he said.

Once this has been calculated, an adjustment needs to be made for the cost of living over a period of time in order to consider rising prices.

Ekstein uses the following example to demonstrate this calculation:

“Your income is R50 000 and your spouse requires the full income to maintain their standard of living and cover expenses. Furthermore, assuming your spouse is currently 30 years of age and plans to retire at age 55, you need to provide an income for the next 25 years where hopefully retirement [and] other savings take over.”

“Also, expect cost of living to increase by 6% every ear for the next 25 years. In today’s monetary value, you will need to have a life cover of just over R7 million to meet this shortfall,” he added. According to Ekstein, research suggests that South Africans tend to be underinsured in terms of life cover, and that the majority of families need to change their lifestyles when their loved ones pass away.

It is important to seek financial advice that will take into account your personal circumstances. If you don’t have a financial adviser, most of the major insurer or asset management firms have their own tied advisors. Visit oldmutual.co.za to find an adviser or for an independent advisor, go to The Financial Planning Institute’s letsplan.co.za.

Ekstein concludes: “The amount of life cover required is one of the most important life and financial decisions that you will make.”

 

Until next time,
The MoneyShop.co.za Team