22,575 people told us what their biggest priority was – and can you guess what it was?
Call me a liar if I said life insurance, but it’s absolutely true. But if it’s really that important to us, why do many not have any at all, or not nearly enough of it?
Take Easter for instance. It’s come and gone, but in this time a lot of people have unfortunately passed away on our roads.
Ever wondered what happens to those they leave behind?
Take the dad, working far from home with a family living in another province. He gets to go home over the Easter weekend but is involved in a car accident. His family spend the whole weekend wondering why he doesn’t return their calls. Days later they get the tragic news – he’s passed away.
A bleak, uncertain future is what the family faces as they come to terms with the fact that money has dried up in addition to losing a loved one.
If the breadwinner in your family passed away, who would help out?
- Neighbours and loved ones can only help so much
- The government? Well, they could claim against the Road Accident Fund but this process may take a long time.
But here’s where our advice might differ from what you get out there
Do you agree with me when I say that spending money on something where you can’t see the immediate benefit, is painful?
Take me for instance; a ballpark figure of R3 million in life cover comes to mind. But at the same time I have other, more urgent things needing money. Things like retirement, fixing my house, you name it.
So why not spend what is within your budget and slowly increase your cover as you can afford more?
It just so happens that direct life insurance companies fit this model perfectly.
Think about this:
You’ve decided to spend R150 a month on life insurance. You call up a life insurance company and half an hour later you have a couple of hundred thousand Rand in life cover.
After a few months you don’t even miss the R150 you pay towards life cover every month. Sure, you may need a lot more life insurance, but it’s a start isn’t it?
But it’s a waste of money because I never get any of my premiums back!
So far we’ve spoken about the benefits of direct life insurance, which is great, but it’s still a grudge purchase, right?
Remember my mentioning saving for retirement above? Well wouldn’t R150 be better spent on something like that? Imagine getting to retirement having spent all your money on life insurance, and then not having enough saved up for retirement? It’s too late to start then. And since you no longer can afford the life insurance (that’s because it might well have just become too expensive), you cancel that as well ending up with nothing to show for your money.
OUTsurance have heard you. They call it their Life OUTbonus.
It may cost a bit more, but watch how a Life OUTbonus kills two birds with one stone.
How does it work?
It’s based on:
- A bonus which pays back all your paid life insurance premiums after 15 claim-free years.
I had a quote done for myself:
- I asked for a quote on R3 million life insurance
- I chose to have the cost increase by 7, 5% every year and the R3 million life cover staying the same. Your percentage increase will depend on your age. The younger you are, the smaller the percentage.
- I was told that if I don’t claim for a period of 15 years, my Life OUTbonus will amount to R770,906, 15 years from now.
- My premiums was calculated at R2, 469 a month for the R3 million life cover, and included the life OUTbonus.
Here’s how it looks on a spreadsheet:
Now here’s the part I want you to think about:
- If I pay for the life insurance for 15 years, then every single cent I’ve ever paid towards life insurance, will get paid back to me.
- If I cancel the life insurance at the 15 year mark, it would be as if I never paid for life insurance at all.
- At this point, I can take all the money I’ve spent on life insurance and use it for retirement.
- If I should pass away before this period, my family will be provided for financially.
It’s a win-win situation.
So how much does life insurance cost if I don’t select the Life OUTbonus?
- If I don’t select the OUTbonus, my monthly premiums came in much cheaper at R1,254 a month.
- The premium also increased by 7, 5% every year with the cover stayed at R3 million
Here’s how it looks on the spreadsheet:
This raises a question about the Life OUTbonus:
- Right off the bat you can see that there’s a R1, 215 a month difference in cost.
- So the question arises as to whether all I’m getting back after 15 years, is the extra money I spent? In other words, aren’t I just getting my R1, 215 back after 15 years with a little bit of interest added on?
The answer to that question is:
To pay me R770, 906 after 15 years by investing R1, 215 a month – with a 7, 5% annual increases in my investment – means I’d need a 10, 40% annual return in order to do that.
Here’s a picture of my financial calculator if you don’t believe me:
The question now is:
How many of us can say we’re earning that sort of guaranteed return right now?
Let’s wrap it up
This is something to get excited about.
Effectively we’re talking about life insurance which pays for itself really. At the end of 15 years, you can take everything you’ve paid for the life insurance, and dump that into your retirement nest egg tax-free.
It’s no longer an ‘either or’ but a ‘both’ situation – Either I buy enough life cover for my immediate situation, or I save for my long-term situation.
We’re not saying that this is the be-all and end-all of insurance. In fact, if you start adding all the bells and whistles that come with it, for example critical illness cover, there’s a greater risk of losing your OUTbonus.
There’s also the underwriting risk involved with all direct life insurance products, but we’ll discuss that in the next article.
Until next time.
The InsuranceFundi Team