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Question: When does one no longer need life cover, disability cover, or dread disease cover? I currently pay over R1,700 a month for my risk policy and have recently lost my employment at 55 years of age. I was thinking of rather putting that R1,700 into one of my RAs. Clever or not?

— Marlene 

Answer: A full and detailed analysis of all her circumstances would need to be made in order to provide advice.

If Marlene believes she will not return to work, and depending on her personal circumstances, it may be that savings are crucial at this point in her life. Among the questions you’d need to ask is, does she have younger children who would benefit from her life cover? And does she have liabilities that require her family to be protected by the life cover?

She also needs to bear in mind the costs of cancelling her life, dread and disability cover. If that risk cover is linked to an endowment or a life policy with cash values, for example, then in the early years you’ll always pay a big penalty when you cancel it, because the commission is loaded upfront. That penalty will come out of her policy value.

If possible, however, she should look to retain her disability cover. But if she does choose to use the R1,700 towards savings instead, and she is no longer earning an income — and is accordingly not a taxpayer — then an RA would in all probability not be the correct investment vehicle. She should rather look at a unit trust.

Of course, this all depends on her individual needs, which is why she should get more specific advice. Much also depends on her health and whether, if she cancelled any of the items she refers to, she would be insurable at a future date if necessary. Should she wish to reapply for cover later, as she ages, it is possible that she then may have to pay a higher premium.

  • Jacob Hirschmann, independent insurance broker

** The above comments are not to be construed as financial advice, given the paucity of personal information available

Send us your questions to yourmoney@fm.co.za

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