Question:
I recently got married and am expecting a baby soon. I need to take out more life insurance, but what is the best type of life insurance to take out? What are the pros and cons of endowment-based life insurance? And do I need to find an advisor for this or is it better to go the DIY route at one of the big insurance companies?

Answer:
The rule of thumb for life insurance is to get enough to cover ten years income plus any debt you might have. So if you owe R500 000 on for example your home and you earn R100 000 per year, you should get cover for the value of R1.5-million.

It is better to get a pure life policy rather than one that has an investment portion attached to it. The reason for this is, say for example you had the policy for five years and in that time the investment portion had grown to R50 000, if you died your heir would only get the life cover amount. In other words the investment amount would go back to the insurance company.

If the investment portion was greater than the cover value then your heir would get the greater of the two but not both. It stands to reason then that keeping investments and insurance separate would benefit the heirs.

The other pitfall of endowment-based life insurance is that it is difficult to keep track of the value of the investment portion. As the policy matures, more of the premium is diverted to risk and less to investment so the returns in these types of policies are generally not very exciting.

You can go directly to a life insurer if you wish, or ask a broker to get some quotes from a number of service providers. But make sure that you read all the fine print before you sign.