Building A Comprehensive Risk Portfolio

As you should diversify your investments, ensure you have sufficient and wide-range risk management in place too.

- Timothy Rangongo

A life insurance contract is typically between a client and an insurance company, where the insurer promises to pay a designated beneficiary a sum of money in exchange for a premium, upon the death of an insured person (often the policyholder).

Depending on the contract, other events – such as terminal or critical illness – can also trigger payment. Other expenses, such as funeral costs, can also be included in the benefits. The inclusion of other events can, however, become confusing for the consumer, as some of these events require separate cover.

“Sometimes all the covers can be integrated and sometimes they are standalone,” says Ana Scott, executive financial planner at Momentum.

She says that people often think they have adequate cover with, say, R2m life cover. However, in the event of a disability, for example, the claim can actually erode the life cover. If the disability cover was for R1m, and you claim on it, it could deplete the life cover to just R1m as opposed to the full R2m.

This is one of the reasons Scott advocates for the use of a financial planner to design what she calls a risk portfolio that is well-diversified.

“What you do with investment policies is what you must also do with risk (insurance) policies.”

Scott advises diversifying the risk, ensuring that you’ve got a little bit of cover in place – in case of death, liabilities, critical illness and loss of income.

Life cover