Life insurance for young professionals
Taking out life insurance feels like a drag. But what if it was simpler, easier and cheaper than you thought possible? What if you could change your mindset about it? What if you saw it as a part of wealth creation because it protects the one element that enables an income and growth – you?
For many young professionals, graduating into the “real world” means new levels of disposable income. Finally, you get to drive the car you want, put down a deposit on a flat and enjoy more than one meal out a month. Earning more means having the freedom to make more choices – and one of those choices should be life insurance.
It sounds like a drag, another monthly premium, a job for ‘future you’. But think about these scenarios for a moment.
You took insurance on the new car because accidents are expensive to fix. You also probably took insurance on your new iPhone or laptop because they’re costly to replace. So logically, why wouldn’t you also take insurance on your life – because getting sick costs money.
Critical illness can be life changing
When people think about life insurance, they often only think about life cover which, simply, is a lump sum of money that you leave to your dependants when you die to help them settle your debts, pay any funeral costs and death taxes and allow them to maintain a good standard of living.
But, what happens if you get sick or are in an accident and survive, but can’t work for a meaningful period of time? Your medical aid won’t necessarily cover everything.
Here’s where many people think, “I’ve got a medical aid, so I’m covered”. While your medical aid may cover some of your treatment costs, it won’t pay for any time off work. It won’t cover you if your sick leave has run out and you need to take unpaid leave. It won’t cover you if you’re self-employed but need to recover.
Think about the knock-on effects: no work (or unpaid leave if you’ve exhausted your sick leave allocation) means a reduced income (or no income at all). And just because you’re not working doesn’t mean your debts and financial obligations stop: you still need to make good on your financial commitments (eg car repayments, rent or bond and your groceries).
That’s why severe illness cover and income protection are two essential ways to keep you (and your family) protected. With severe illness cover, you get paid a lump sum if you’re diagnosed with a serious condition like cancer, stroke or a heart attack.
You can use the money to cover all the associated costs of getting sick that your medical aid doesn’t cover. With income protection, you’ll get paid up to 100% of your net of tax income while you’re unable to do your job to ensure you still able to cover your living expenses. If you have cover with your employer package (generally offered as multiples of your salary through your employer pension or provident fund), it’s especially important to understand exactly what you’re covered for. Many companies will offer life cover and income protection, but don’t offer severe illness or lump sum disability benefits, a worrying omission in a country where 20% of South Africans* are likely to get cancer before they’re 75 years of age*.
Living through a serious illness isn’t only hard on you – it’s also hard on your loved ones. You may choose to get critical illness cover that pays out a lump sum that you can use any way you choose – whether it’s employing a nurse so your family can take a break or covering extra treatment your medical aid won’t pay for.
You need the right insurance plans in place as a young person
We can hear you object, “I’m young, what are the chances of getting so sick that I can’t work?”
The fact is, if we haven’t put the right protection in place, we’re all one serious illness or accident away from financial ruin. People end up going into massive debt and ask family and friends for help. Some even set-up public GoFundMe campaigns to raise money for treatments their medical aid doesn’t cover. It’s also a fact that South Africa was recently ranked last in a global health survey of national wellness, which tracks metrics like blood pressure, blood glucose, obesity, depression, exercise, alcohol and tobacco use.
The truth is that being young doesn’t mean you’re immune to illness. In fact, according to John Hopkins Medicine, some 7% of women between the ages of 20 and 34 have high blood pressure. While that may seem relatively low, the underlying risk is that young adults are far less likely to be diagnosed and treated for this condition. Keep in mind, pregnancy may complicate high blood pressure.
While men in the 20s don’t suffer from many age-based health problems, they do have an ‘attitude of invincibility’, according to HealthKC.com. But unhealthy habits developed during this life stage (drinking, skipping physical exams, poor diet etc) can create serious health issues in the future.
One of the primary factors that impact your premiums is that you end up paying for your lifestyle, which is why the healthier you are, the lower your premiums become. In this instance, most insurers will even lower your monthly payments if you change certain things in your lifestyle (eg, smoking, losing weight, taking prescribed medication etc).
What are the benefits of life insurance in your 20s?
The most obvious one, and often the one overlooked, is that it will save you money. By taking out life insurance in your 20s, you enjoy much lower premiums than if you took it out later in life. You’re also likely to have fewer (if any) exclusions for pre-existing conditions on your policy. It creates a solid foundation; in fact, it could be seen as the bedrock of your financial planning.
If you wait too long to take out life insurance, you increase the chances of developing a condition, ailment or disease that an insurer won’t cover after the fact.
Keep in mind your milestone events when you are looking at insurance solutions
Whether you’ve just got married, started a family, bought a house, reached a milestone birthday or started to think more seriously about life as a young professional, insurance should be top of mind.
What life insurance would you need at certain milestone events in your life? When you buy your first home or apartment, for example, you will incur a large debt, which you need to protect. In fact, a common mistake is for young people to only think of life insurance when they get on the property ladder, but your view should be more holistic and all-encompassing.
If you have started and grown a small business or side hustle, you are in all likelihood the driving force of this business. If you had to pass away, your spouse or family would also lose this second stream of income.
And remember, a lot can happen in a year: so it’s important to review your policy whenever you add a new beneficiary or make a major change in your life or career. It’s important to check that your policy is up to date.
Protect your loved ones
As a young professional, your loved ones often rely on you for financial stability. But, what if you are no longer there? In the event of your death, a policy pay-out will ease the burden of your passing on your loved ones, enabling them to pay for your funeral and to pay out for their living expenses without financial strain.
The advantages of life insurance
- Life insurance pay-outs can help provide financial security for loved ones
- It can help reduce the disruption of losing a parent or partner
- It can help compensate for a loss of earnings for those you leave behind
- It can be put towards unpaid debts, such as a mortgage, that fall to loved ones
- Some kinds of policies are designed to contribute toward funeral costs
- Some add-ons like critical illness cover can cover medical treatments that your medical aid may not cover
- Most of all, it can give you peace of mind should you not be able to work due to an illness, injury or disability
Tax-free lump sum pay-outs from long-term insurance
There are tax benefits and advantages of life insurance because death, illness or disability benefit pay-outs are generally tax-free. When you receive a lump sum pay-out from any long-term insurance policy, that pay-out is exempt from tax.
Buying life insurance
Start with two basic questions. What can your budget sustain? How long you need to be covered for?
By keeping this in mind, it can make it easier to choose the right cover for your life stage. If life insurance is offered as part of your benefits package, check if severe illness and disability cover is provided by your employer package (it’s generally not included).
While an insurance adviser or broker is another option; you could also try searching online to get life insurance quotes from multiple insurers. You should compare the policies being offered and the premiums to find the policy that best fits your needs.
However, unless you work in the insurance field, it can be overwhelming or confusing to know what cover is the best fit for you – so it best to seek out trusted advice from a reputable source.
Time is on your side, after all. While you may recognise the need for life insurance in your 20s, you don’t want to rush into a buying decision without getting all the facts first.
If 2020 has taught us anything, it’s that life is unpredictable. That’s both encouraging and a little scary. While you take on the world and enjoy the future of growth and opportunity ahead of you, make sure you’ve planned for all those unpredictable events that could get in the way.
Keep in mind, these decisions are never wholly financial. This is about protecting a valuable asset or resource – you. Your education and skills. Your talent. And ensuring that you leave these as a legacy that you will be proud of.