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January 28, 2019

How to protect your biggest asset

By: Hippo.co.za

How to protect your biggest asset – your ability to earn an income

If you are new to the working world and full of the joys of earning a salary, insurance may be low on the list of priorities when deciding how to spend your newfound earnings.

But, regular paycheques usually lead to accrued assets as well as the possible accumulation of debt that would need protecting. Given that your biggest asset is your ability to earn an income to maintain your lifestyle, it is important to understand the risks that you face should disability or retrenchment affect your earnings.

Vera Nagtegaal, Executive Head of Hippo.co.za, says that while some employers may offer group risk benefits, the specific benefits included might not be enough to fully protect you and your money.

“It is vital that you accurately assess the cover that you require and that you regularly update your policies each time there is a change in your circumstances,” Nagtegaal explains.

According to a 2016 Gap Study conducted by the Association for Savings and Investment South Africa (ASISA), the biggest shortfall in disability and life insurance lies within younger age groups of 39 and under. The study showed that only 35% of under-30s have adequate disability insurance and only 13% have adequate life insurance.

Underinsurance is a big challenge for the industry, points out Nagtegaal. As an illustration of this, the statistics by the study show that the average under-30 would need R1.33m in death insurance cover but has just R168 000 worth of cover. The shortfall in disability cover is even larger, with the average under-30 having just R738 000 worth of cover when their actual need is R2.1m. The study cites an overall shortfall of R4.1 billion for death insurance and a whopping R4.9 billion for disability cover for under-30s.

Nagtegaal emphasises the importance of having adequate disability cover and says that, especially as a young person, an income protection plan that pays out a monthly sum of money over the time you are unable to earn a living may be better than a disability policy that pays out a lump sum.

“This is because the younger you are, the more working years you have ahead of you and if you become permanently disabled, an income protection policy will pay you a monthly income for the rest of your life, based on a portion of what you earned at the time of becoming disabled. Should you be employed in a different type of job with your disability, the policy could also protect you and your dependants in terms of additional medical expenses, while at the same time allowing you to save for retirement,” she points out.

Life cover, which pays out upon death, is often perceived as a grudge purchase, but there are good reasons for taking out a life policy while you’re still young, whether you have dependents or not. For one, younger people are generally healthier and therefore considered lower risk. This means that your premiums will be lower with fewer, if any, exclusions. It also means that your family will not be liable for your debts should you die.

“The industry has risen to the challenge of the changing nature of the young workforce by developing smart, innovative products that are also affordable, for example merging policies such as life and funeral cover into one product. Also offering quick insurance solutions via mobile apps and SMS services will ensure that these products are easily accessible. I believe that this change in workforce behaviour is all the more reason for millennials to protect themselves, their loved ones and their possessions through being adequately insured,” she concludes.

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