On a daily basis we are confronted with this dilema, and the suitable answer lies somewhere in between each person’s own cicumstances. But there are some relevant factors that everyone should be aware of.
The main factors that will determine the price of insurance are:
- Required term of the cover: Cover can be priced for life or for a certain term. A shorter term reduces the insurance company’s long term risk and will reduce the cost.
- The Purpose of the insurance: If you want to cover a 10 year business loan, in principle you do not have to take a lifetime term. If you need it for life, you don’t want term cover.
- Age of the Life insured: Insurance gets exponentialy pricier the older you are, so it is important that you only pay for what you need and take it whilst you can.
- Health of the Life insured: Health is a major factor in determining the cost of insurance. We see it all too often that clients require cover but due to health issues struggle to get insurance or it is just too expensive.
- The selected premium pattern: The premium pattern is the main determinant of how your premiums will increase on an annual basis. This purely means taking the cheapest premium without considering the long term requirements will become and expensive error.
Here is an example of R5million life cover with 3 different premium patterns.
What is clear, affordability is relative to what you need when you need it and for how long you need it. Suitabilitydetermines affordability.
Don’t let someone sell you cheap insurance, that is not suitable for your actual needs, that is unaffordable in the long run and that does not take into account your full financial picture, taxes and family considerations etc.
If you are unsure if your insurance is suitable and affordable, send us and email or get in touch.
Jacques Hodsdon – MCom Tax | CA(SA) | CFP ® is a Director of Affluence Group and specialises in Investments, Personal and Business planning. For enquiries contact, email@example.com or 013 752 6566