Private Portfolio – Life Insurance for Life
Understanding the basics of life insurance can make things easier when next time you are confronted by an enthusiatic insurance salesperson who might be tempted to baffle you with insurance jargon.
What I am about to say is also my own opinion and I know many people in this business who will differ with me and I respect their opinion.
In the past you had to take out an insurance policy to which you could add benefits like death cover, disability cover and dread disease cover of which the death cover was the underlying benefit dictating the maximum amount of the additional benefits.
Modern generation insurance policies are far more flexible and can be structured according to the specific needs of a person. You can even get several seperate death benefit “policies” or sets of death cover within the same policy.
This makes it handy for a person who needs to cede an amount of death cover to the bank for example which is less than the total death benefit offered by a policy. The balance may then be ceded to a different bank.
Many other benefits can also be taken as a stand alone option of a policy on its own and does not need to be an underlying benefit to the death cover any more. If you e.g. need dread disease cover you can take it as a policy on its own, keeping your “paperwork” neatly seperate.
If you buy death cover for only a set term, in my mind it means that either you know when you will die or you know with certainty you will not need the death cover after you have reached a certain age. Keep in mind that suicide within the first three years of your death benefit is excluded.
None of the people I know are able to say when they will die and that they will not need an amount of death cover when they die.
The only way to ensure that your death cover will actually pay out one day is to take out a whole life policy. This means the policy will pay the death benefit whenever you die, no matter when this event may take place.
This is important because in every estate cash is required to pay the expenses associated with winding up an estate and this may be a significant amount – depending on the size of your estate and the liabilities.
If the cash is not available your executor will be forced to sell some of the assets in the estate to generate the cash and at possibly an inopportune time when market values are not in your favour.
So, to make a long story shorter, in my view the one insurance policy a person needs is one that cover his risks in terms of death, dread disease, disablility, business related risks and to use the available options for other living benefits.
The other policy one needs is a retirement annuity and with a premium of as much as you can afford up to the maximum deductible allowance for income tax purposes. That amount today is N$3333.33 per month or N$40,000 per year that the authorities allow you to deduct from your taxable income as your contribution to your retirement. This includes your contributions to a pension fund and so-called study policies.
Something else to consider when it comes to retirement annuities (RA) is to split the allowable premium between a number of different RA’s. The reason I say this is because one cannot partially activate a retirement annuity. Its all or nothing.
If you have your retirement savings split up between a few different RA’s you can retire with them as you need them or use the first one that pays you a big enough pension and use the others to give you an increase over the years ahead as the inflation monster bares it’s teeth.