Five insurances every household should have, from income to goods to death
It is always better to be safe than sorry when it comes to insurance
Many people see insurance as a grudge purchase but the reality is that insurance is an investment in the future and provides vital protection. The cost of not being insured far outweighs the short-term benefit of a few extra rands every month.
"People are often reluctant to spend money on insurance, as it is intangible, and the benefits thereof are not immediately evident," says Roy Wright, head of Risk Solutions at wealth and financial advisory business GTC.
Some people may believe they will never use insurance, but it is always better to be safe than sorry when tragedy strikes.
"Lack of insurance can leave you with significant, unforeseen expenses to cover at any time," Wright says.
Here is a summary of the top five must-have insurances:
The first port of call should be income protection, says Ian Beere, managing director and wealth manager at Netto Invest.
"Your ability to earn an income is probably one of the biggest assets in your lifetime. If you work out what lump sum will replace all your earnings from now until 65, it is worth a lot. It is the first insurance you should think about."
This benefit is calculated as a percentage of your monthly income and is paid for the rest of your working life as long as you are unable to work.
Floris Slabbert, director at Ecsponent Financial Services, says while you must ensure that the benefit is sufficient to cover your needs, it is important to understand that you need protection for both temporary and permanent disability.
Temporary disabilities such as recovery from a stroke or serious accident may last longer than your sick leave if you are employed or compromise your income for some time if you are self-employed.
Life cover is essential if you have a family. Life insurance effectively buys an income for your dependants and pays off your debt, such as an outstanding home loan, Beere explains.
Funeral cover should ideally be built into your life cover as an additional benefit that pays out immediately.
Life cover is usually a multiple of your annual salary, Slabbert says. "You need to be comfortable that the cover is sufficient for your needs and the needs of your dependants in the case of your death," he says.
Lump-sum disability cover
Beere says ideally you should add some lump-sum disability cover to your life cover, but this is dependent on your situation.
This benefit typically only pays out once it has been established that your disability is permanent.
He says lump-sum cover is good to fund expenses arising from an impairment such as the loss of a leg, even though you are able to continue in your career as an accountant, for example. Impairment policies typically pay out a percentage of the sum insured, depending on the severity of your impairment.
Medical scheme cover
While the cost of private hospital and specialist treatment can be astronomical, many South Africans regard medical scheme cover as a non-negotiable.
If you can afford it, gap cover insurance can be useful to plug the difference between what specialists charge and what medical schemes pay. However, if you are looking to save on insurance costs, try to minimise the gaps in medical scheme cover by using a plan where the scheme covers a network of doctors in full.
This is a must-have if you have valuable assets such as a house or car that you would need to replace but could not from your personal savings.
"A large number of people who lost their homes in Knysna weren't insured. This is not an option. If you own a property - even if paid off - insure it. Then make sure you have cover for anything that you have borrowed money to purchase," Beere says.
It is good to consider taking out severe and critical illness or dread-disease cover. It usually pays out as a lump sum and may be calculated according to the severity of the illness. It also pays for additional expenses that arise when you are faced with a severe illness. If your budget is constrained, focus on the other essential insurances first.