Question

I retired three years ago, with half my income coming from my company pension fund and the other half from interest from investments. I am paying tax at a rate of 41%. Is there anything that I can do to reduce this amount?

Answer

It is difficult to answer this question without knowing more about your future plans. There are a couple of things that you should consider when thinking about life insurance.

Your friend is correct when he said that the cover will be cheap when you are young. As you get older, the cost of cover increases significantly.

Now just because something is cheap, it does not mean that you should buy it.  It is pointless paying for life insurance cover if you do not need it. As you do not currently have any debt or family who will depend on your salary, you probably do not need life insurance now.

However, you may need life insurance in the future.  You may, for example, have children in the future that will be dependent on your salary or you may need to take out a personal or business loan that needs life insurance as collateral for the debt.

Life insurance cover does come with challenges because as you get older, you could develop medical conditions which could result in your insurance premiums being heavily loaded or even having the cover declined. This can cause problems.  It may be prudent to “bank” the cover while you are young and healthy.

If you think you may need cover in the future, then take out a minimal amount of life insurance cover now but add in future insurability cover.   What this means is that the life insurance company will underwrite you now, while you are young and healthy for future increases in your cover.  These would include:

• Marriage
• Birth of a child
• Buying a home
• Taking up or increasing an interest in a business

You will get this cover with the limited underwriting like an HIV test.  You will pay a small premium for this benefit but in my mind, it is definitely worth it.

The more important benefit that a young person should take out is disability cover. You would ideally like to remain on the same life trajectory should you become disabled and be unable to work. This will not happen if you have to rely on government social grants. I therefore recommend that you take out cover that will pay you a monthly benefit as well as a lump sum should they be unable to work because of a disability. 

So to answer your question, I would recommend that you consider taking out disability cover in the first instance and then a small amount of life insurance cover with future insurability.