Remember that everyone’s circumstances are different and spouses need to discuss and evaluate how much cover is required.

Financial planning can be divided into three separate areas. These are:-

a) Peace-of-mind solutions and maintaining lifestyles — the most important components of this segment relate to the following: Life insurance, healthcare and disability, retirement planning.

b) Creating and preserving wealth — you now have available surplus funds to invest outside your occupation or current business. The choices are: equities, property and private equity.

c) Ensuring that all the structures and legal documents are in place — this refers to having an updated and current will, trusts which are independent from you, and making sure that your letter of wishes is updated and that you do not control your trust.

In this article, I would like to concentrate on the importance of life insurance.

Two significant changes have occurred in the past few years that have resulted in a need to reassess your life cover.

1. Interest rates have come down and the amount of capital required to provide the same income has now dramatically increased in comparison to the income received when interest rates were higher.

2. Traditional life assurance products have been radically revamped. The new products are much more complex and there is a great deal more to them than mere price.

For this reason, it is crucial to tailor an effective solution. The question is, “where does a person start?”

a) There are definite critical circumstances that you will need to provide for in the event of premature death.

• Education — it is not difficult to calculate how much you need to set aside to provide for your children’s education. For example, if you have two children aged four and six at a government school, the current cost of education is R15000 a year per child. You can calculate, using a 10% inflation rate, how much capital you would need to invest to pay for school fees.

You would need the capital amount that is invested for the term of education, and each year you would draw from this investment to pay the fees. Based on the four- and six-year-old scenario, I would estimate you would need approximately R800000 today invested at 8% to cover the cost of education up to university. New-generation insurance companies understand the problem and have developed some very sophisticated ways of catering for this expense.

• Debt — it’s essential that all liabilities are paid off. This is a known amount and therefore you can take insurance for cover in the event of premature death.

b) Future living expenses — this is where the difficulty lies because of future inflation. However, today, financial advisers have such sophisticated models that they are able to calculate how much one needs to invest, to provide sufficient income for your family for many years to come.

In order to calculate what income is required at the outset, you will need to exclude from your monthly budget all those expenses which, in the event of death, will no longer be part of the budget. Education and debt have been catered for separately as well as the costs of life insurance, disability and your retirement savings.

You will find that your annual expenses will probably be 40% lower. I have seen many situations where families needed R65000 a month, only to be reduced to R35000 because these expenses have fallen away.

I have yet to come across the person who said, upon the death of their spouse, that they had been left too much money.

You only have to look around to realise that the statement, “it will never happen to us”, is a fallacy. There are too many young people left without a spouse and with young children needing care.

Where will the money come from?