How do my life insurance policy and my savings plan work hand in hand?

Posted on 22 Nov, 21 by BrightRock

 It’s important to have both life insurance and savings plans, as they each safeguard your future in different ways. Life insurance is necessary to protect you and your loved ones should anything happen to you, while savings are critical in helping you prepare for unexpected expenses and keep your debt to a minimum.

Your life insurance and savings are part of your financial plan for the future

When you think of your savings plan, life insurance is not likely to be the first thing you associate with saving up for what is important to you. Most people see life insurance as a grudge purchase, something that you only benefit from should something happen to you.

On the surface, life insurance doesn’t seem to have much to do with those financial goals you set yourself. But it’s important to see life insurance, disability and critical illness cover, and your savings as important vehicles that work hand in hand.

 Ensure you structure your insurance cover efficiently so you can have more leftover for savings

Your life insurance policy should be structured so you’re managing your premiums as efficiently as possible, paying as little as you can for adequate life cover so you have additional amounts available to supplement your savings. Getting needs-matched cover is key so that you can ensure that you’re not overpaying for cover that you don’t need that cover.

Evaluate your portfolio regularly

It’s important to set up regular sessions with your financial adviser to reassess your financial portfolio and make changes if necessary. For example, perhaps you took out some life insurance a few years ago to pay off your bond in case you became disabled or passed away. You recently came into an inheritance, however, and have since used this money to pay off your bond. Because you no longer need this cover for your bond, it is a good idea to move that cover to an area in your policy where you are possibly underinsured or to move that amount into a savings vehicle like your retirement policies.  

Be aware that a critical illness or disability can drain your savings

Critical illness has an important link to savings. For example, you could become disabled in a car crash and need to make multiple changes to your house, such as ramps and modifications to your bathroom and kitchen.  If you don’t have cover in place for this, the money will need to come from somewhere and unfortunately, that will mean digging into savings. A small emergency fund will not be enough to pay for the significant additional expenses that could arise from a serious illness or injury.

A financial adviser can help you

Insurance products can be pretty complicated. Making the wrong decision can have serious consequences for you and your family, so it’s worthwhile to shop around for the best advice. Fortunately, many well-qualified financial advisers can answer your questions, provide clear explanations, and help you understand what you’re buying when it comes to life insurance. Financial advisers must meet strict regulatory requirements and be properly licensed with the Financial Sector Conduct Authority (FSCA) and product providers.  You have the right to ask your adviser for their credentials and ask whether they are independent or work for a specific product provider.