During the 40 years as a financial advisor, this question was obviously discussed over and over again. Firstly, this is the starting point of a comprehensive financial plan, and it should be reviewed with your financial advisor. You need to be totally honest and divulge all your income and debt as follows:
Step 1: Calculate Your Outstanding Debt
Your life cover should be enough to settle all your debts, so your family isn’t burdened by repayments.
Include:
- Home loan (bond)
- Car finance
- Credit cards
- Personal loans
- Student loans
Example:
- Bond: R1,000,000
- Car: R250,000
- Credit cards/personal loans: R100,000
Total debt to cover: R1,350,000
Step 2: Provide for Living Expenses
Estimate how much your family will need to cover day-to-day expenses and maintain their standard of living.
- Monthly expenses × Number of months/years your family will need support
- Consider inflation and growing children
Example:
R25,000/month × 10 years = R3,000,000
(This gives your family a stable income while adjusting to the loss.)
Step 3: Education Costs
If you have children, include the cost of school and university education.
Example:
- School fees (x years): R500,000
- University per child: R400,000 × 2 children = R800,000
Total education need: R1,300,000
Step 4: Funeral and Estate Costs
Include:
- Funeral costs (R30,000–R50,000 on average)
- Executor fees (up to 3.5% of estate)
- Master’s fees and legal costs
Estimate total: R100,000 – R200,000
Step 5: Subtract Existing Assets
If you already have investments or savings (e.g. retirement funds, unit trusts, group life cover), subtract these from your total need.
Example:
Assets/savings: R1,000,000
Cover required = Total need − Assets
Final Calculation Example
| Item | Amount (ZAR) |
|---|---|
| Outstanding debts | R1,350,000 |
| Living expenses (10 years) | R3,000,000 |
| Education costs | R1,300,000 |
| Estate and funeral costs | R150,000 |
| Subtotal | R5,800,000 |
| Less: Existing assets/savings | (R1,000,000) |
| Life cover needed | R4,800,000 |
Key Tips
- Review your life cover every 1–2 years or after major life changes (marriage, birth of a child, buying a house).
- Work with a financial advisor to fine-tune your numbers and adjust for inflation.
- Choose a cover that includes terminal illness benefits or premium waiver options for added security.
Final Thoughts
The right life cover amount is not just about paying off debt — it’s about ensuring your family can live with dignity and stability in your absence. Take the time to calculate your needs properly and review it regularly as life changes.
suletta 