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Cape Town, 24 July 2015
Petrie Marx, product development actuary at Sanlam Personal Finance, says these types of products are focused on an individual’s entire life versus more traditional products which were, typically, aimed at covering someone for a certain limited period of time.
“Life expectancy has increased by 20 years since the 1950s, largely due to advances in medicine, better nutrition, improved public health systems and technology breakthroughs. Longevity emerges as a key factor in Sanlam’s BENCHMARK retirement survey year after year – individuals planning their retirement today actually face a very different context than they had anticipated. ‘Time in retirement’ has extended from the current 15 to 20 years in retirement to 25 to 30 years or even longer,” Marx says.
He says the only way for retirement savers to accommodate this increasing longevity scenario is to accumulate more capital for retirement, or retire later. “But equally important is ensuring that you have enough insurance risk cover for uncontrollable events which could impact your financial situation – after you retire.”
Traditionally, the only risk cover which covered the ‘whole of life’ was life insurance. Products such as dread disease, disability and income protection were usually ‘term policies’ – cover typically ended after a certain term, often retirement. However, over the past few years, insurance companies have developed risk products for the whole of life – providing cover for unforeseen events both before and after retirement. They remain in force for an individual’s entire lifetime, provided the premiums are paid. These include:
Marx says risk insurance products covering the whole of life are slightly more expensive than term products. “However, if you start investing in these products when you are young, the price difference is almost negligible and the benefits are available at any stage of your life, both before and after retirement.
“It is also important to note that a whole life insurance policy is not a retirement plan. You still need to save to ensure you can afford an annuity appropriate to your financial needs. Instead, these products insure the factors that may unexpectedly put pressure on your monthly pension, giving you extra peace of mind.”
Marx says the need for a proper financial analysis and plan remains crucial. “A professional financial adviser will be able to take into account all your financial needs, and advise you on the best combination of insurance cover for each stage of life.”