Over the weekend I had an interesting discussion with a friend who was very surprised to discover that her retirement annuity included life cover.
This is something many people may not be aware of. If you have a retirement annuity through an insurance company, it may include some form of life cover, especially if it is an “older generation” product.
This is significant for two reasons. Firstly it means that not all your contributions are going to the investment portion and secondly, this cover needs to be included when you are calculating your life cover need.
While you may believe that you are investing R500 a month into your RA, it may be that only R400 is actually invested with R100 going to life cover contributions. This will affect your final lump sum and is possibly why many people are disappointed with their final returns.
Some people may find that they are actually over insured because they have disability cover within their retirement annuity and have taken out additional disability cover with a life company.
The rules do not allow you to draw disability income from two policies if it exceeds 75% of your previous income. Your company retirement fund invariably has life and disability cover, so this also needs to be taken into consideration.
The problem really is that we don’t sit down and look at our finances in their entirety and we tend to buy products in silos.
Take the time now to go through all your investments and policies and understand exactly what investments and cover you have, and don’t buy another product without first fully reviewing what you already have.
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