Life cover is particularly important if you are the main income provider and your family depends on you. You need life cover to settle debt on your passing, and to substitute lost income when you aren’t around to provide. You may be asking, “How much life cover do I need”? This is an important question. And there is no one answer that is true for everyone. Here are 3 ways to estimate the amount of cover you’ll need:

  1. Rule of thumb No. 1: Multiply your income by 10.
    The first rule of thumb is that the death benefit on your policy should equal 10 times the amount of your annual salary.
  2. Rule of thumb No. 2: Multiply your annual salary by the number of years left until retirement.
    For example, if you are 40-years-old and currently make R200,000 a year, you will need R5000,000 (25 years x R200,000) in life cover.However, the problem with rules of thumb is that they don’t take your personal circumstances into account.
  3. How to get a ballpark figure that’s right for you.
    The good news is that by working your way through a series of smaller questions, you’ll get a clearer picture of your current financial situation and your assurance needs. So, first questions first…

    • How long will your dependents need your income?
      The answer depends on your personal circumstances. If for example, you have four children under the age of seven and you’re planning to provide them each with a tertiary education, you’re looking at about 20–25 years before the youngest will be self-supporting. If, on the other hand, it’s your parents who rely on your income, the time frame may be shorter.
    • How much do they need each month?
      This calculation is key and it’s worth taking the time to put a proper budget together to determine exactly how much your family needs to get through each month. Remember to include annual expenses like the TV and car licenses and new school uniforms, as well as unexpected expenses like home maintenance and car repairs.
    • What future expenses need to be covered?
      Education is a big one, but there are other big expenses to consider, such as settling your home loan, funeral expenses, paying for your daughter’s dream wedding or providing lobola for your son’s future wife.

Once you’ve arrived at answers to each of these questions, deduct any investments and savings you may be leaving behind and you should be left with a fairly good sense of the amount of life insurance you’ll need. You can also test this amount against one or more of the many calculators available online.

Life cover may not seem particularly important now, but it will be one day. It’s a good idea to start thinking about these questions, and actioning your life cover.

Materials Used and Further Reading
How Much Life Insurance Should You Carry?
How much life cover is enough?
How much life insurance do I need?
How much life cover is enough?

Follow us on
Facebook