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Daily Maverick
02-07-2025
- Business
- Daily Maverick
Get life insurance right for retirement — here's what to look for in a policy
Here's how to structure a policy, manage premiums and avoid unhappy financial surprises. A good life insurance policy pays out a tax-free lump sum to your beneficiaries, helping them to replace your income, settle debts and meet long-term financial goals like education or housing. It also offers immediate liquidity, unlike inheritance payouts, which could take months – or longer – to materialise. Because the cost of dying can far exceed what money has been saved, a life insurance policy could deliver more value than a traditional investment. Saving R1,000 a month takes decades to reach R1-million, but a monthly R1,000 premium could secure that cover almost immediately. Retirement is a time when you should be enjoying the returns on your savings and investments, says Ester Ochse, product head at FNB Integrated Advice. 'If one is married, it's very important to ensure that the surviving spouse is looked after in terms of having a home while having their living expenses and, most notably, medical expenses covered.' What to look for in a policy 'Ensuring the long-term sustainability of a life insurance policy requires a strategic approach that prioritises future affordability over immediate savings,' says Jonathan Nel, technical head at GrowthHouse Financial Planning Services. Policies with low starting premiums often escalate sharply later, leaving retirees struggling to pay. The most effective strategy is to select a policy with a stable and predictable premium pattern, even if it means a higher initial cost, Nel advises. Premiums are typically based on your age, gender, health, smoker status, occupation and lifestyle. Some escalate by age band, such as a 6% escalation annually from 18 to 25, and an 8% escalation from 26 to 35. 'You should compare different premium patterns and take your current affordability and personal circumstances into account,' says Sean van Zyl, financial planner at Old Mutual Personal Finance. Choose quality cover Whole-of-life policies provide more certainty than accident-only cover, Nel says. 'It's crucial to avoid cheaper options that only cover accidents or specific events, as many people mistakenly believe 'accident' coverage extends to all death-related events.' Ensure that your policy includes an annual benefit increase and confirmed underwriting before the contract is signed, and that a clearly defined sum is assured. Review annually Premiums may be reviewed by insurers, but you should initiate regular reviews yourself. Nel advises doing this annually and especially after life-stage events such as marriage, divorce, the birth of children or when taking on significant debt. Removing redundant add-ons, like unused premium waivers, can also cut costs. Compare apples with apples When shopping around for policies, Van Zyl recommends looking beyond the monthly price (see below). Key questions to ask: Is the premium guaranteed or subject to escalation?; Does the sum assured (amount of life cover) increase over time?; What exclusions or waiting periods apply?; How flexible is the policy if your life circumstances change?; and What's the insurer's claim reputation? DM This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R35.
The Citizen
08-06-2025
- Business
- The Citizen
Are you one of the almost 16% who can afford a home loan over R1.3 million?
The question is not only if you can afford a home loan but if you can afford all the other expenses of owning a property. Recent research by an independent economist reveals that less than 16% of South Africans can genuinely afford homes priced above R1.3 million, underscoring a growing disparity between loan approvals and actual affordability. This raises questions about the financial sustainability of homeownership for the average buyer, Henri Le Grange, certified financial planner at Old Mutual Personal Finance, says. 'Qualifying for a bank loan does not necessarily mean you can afford all the costs that come with owning a home. 'The affordability gap often arises because banks assess loan eligibility primarily based on income thresholds, without considering your broader financial plan.' Le Grange says banks typically evaluate affordability based not only on gross income but also on disposable income, net income and previous monthly expenses. 'However, they consider past data and may not account for additional costs that come with homeownership, such as maintenance, insurance, or the impact of interest rate changes. ALSO READ: More SA consumers battling to pay their home loans and credit cards – report Some people get home loans but cannot afford true repayment 'As a result, I have seen customers approved for loans that exceed their true repayment capacity, threatening their financial well-being. This disconnect highlights the importance of seeking professional advice before buying a home.' Research by Izak Odendaal, Investment Strategist at Old Mutual Wealth, highlights key reasons why owning a home remains out of reach for many South Africans: stagnant wages, rising inflation and higher interest rates. 'South Africa's high interest rates and increasing property prices have made homeownership increasingly difficult. 'Many prospective buyers have been locked out of the market due to these combined factors, resulting in record-low affordability levels in the housing sector. 'Buying a home is one of the biggest financial decisions you will ever make, and it is easy to underestimate the true cost of ownership. 'Many customers also overlook the ongoing costs tied to homeownership, such as maintenance, insurance, property taxes and utilities, all expenses that can place additional strain on household budgets over time.' ALSO READ: South Africans cannot afford their homes but also can't afford to sell them Financial adviser can help look at your financial long-term plan However, he says that a financial adviser can help customers look beyond simply qualifying for a loan and ensure they are financially prepared for the long term. 'Many customers focus only on whether they can afford the loan repayment, often neglecting their long-term goals. It is not just about paying the bond. You must plan effectively to secure your long-term financial well-being.' Le Grange says working with a financial adviser helps you to create a realistic budget and prepare for upfront as well as long-term costs. 'A solid financial plan ensures you are ready for the responsibilities that come with homeownership. The goal is to help customers avoid borrowing more than they can manage and stay financially secure in the future.' Le Grange encourages consumers to take these practical steps to check if they can afford a home loan before committing to one: #1: Prepare for ongoing and unexpected costs: When you buy a home, do not just budget for the deposit and monthly home loan payments. Ensure you are ready for other costs, such as repairs, maintenance and higher utility bills. There are also transfer duty, conveyancing fees and bond registration costs, which consumers often overlook. These costs can arise unexpectedly, and therefore it is important to set aside extra money to cover these expenses and avoid financial strain. ALSO READ: Thinking of buying your first home, here are five key issues to consider #2: Test your ability to make home loan repayments: Before committing to a home loan, try putting aside the amount you would pay each month into a savings account. This will help you to see if you can afford the repayment comfortably and, if necessary, adjust your spending habits to make sure you are ready for the commitment. #3: Think about changes in interest rates: Interest rates can change, which means your home loan repayments may increase in the future. It is a good idea to think about how a rate increase could affect your budget and make sure you are in a position to handle any changes to your repayment amount. #4: Choose a loan term that fits your budget: When you take out a home loan, think about how much time you want to pay it off. A shorter loan term will mean higher monthly payments, but you will pay less interest overall. A longer loan term can lower your payments, but you will pay more interest in the long run. Choose a loan term that works for your budget and future needs. ALSO READ: How to finance your home loan if you do not have a regular income #5: Speak with a financial adviser and have a financial plan in place A financial adviser can help you consider your overall financial situation and create a plan that works for your short-term and long-term goals. They can also highlight any risks or hidden costs and suggest the best strategy for managing your home loan while keeping your finances healthy. In a challenging economic environment, affordability and financial resilience have never been more important, Le Grange says. 'Now more than ever, making informed financial decisions is key to building a secure future. Speaking to a trusted financial adviser can help to ensure your choices support both your immediate needs and long-term goals.'
