Many people that take out a life policy base the sum insured (maximum amount paid out for claims) on the amount of money that will be required to protect their dependants financially should they pass away.
“As your financial circumstances change, it becomes essential to review the sum insured as it may no longer be sufficient to cover the needs of your family or dependants,” says Lee Bromfield, CEO of FNB Life.
“There are common situations that may lead people to update the amount of cover they are insured for,” explains Bromfield:
- Buying a new house – when taking out a home loan your financial institution may require that you have life insurance in place to cover the debt in the event that you pass away. Depending on the loan amount a portion of your life cover will be ceded against the home loan, leaving your dependants underinsured and out of pocket.
- Children – one of the common reasons why people take out life insurance is to protect the financial future of their children. When you have a new child or the number of your dependants increases, it is important to ensure that your life insurance is adjusted to accommodate the changes.
- Getting a higher paying job – if your financial situation improves, you should update your life cover amount accordingly to ensure your dependants maintain the same lifestyle should you pass away. For example, you could have moved into an affluent suburb and decided to take your kids to a high end private school.
- Marriage – getting married and starting a family is a commitment that comes with a number of financial responsibilities. Updating your policy cover and including your partner as a beneficiary becomes essential, especially when you are married in community of property.
- Health – if your health condition changes, you may have to consider updating your life cover amount, based on your age and individual circumstances. Furthermore, depending on the nature and severity of the illness you may have to claim from your insurer anyway. This would also give you an opportunity to review your policy and the sum insured.
“If you are unsure of the amount of life cover you need or whether it’s the right time to update your policy, it is advisable to speak to your bank or financial services provider for guidance,” concludes Bromfield.