It's hard to decide how much life insurance you need. You can't trust your broker as he'll always try to sell you the biggest policy he thinks you'll buy since he's making commission on it.
Here's how you can get an idea of how much is enough...
A simple calculation
The calculation you use to work out how much life insurance is quite simple. The rule of thumb is 10 times your annual earnings plus your debt.
So say for example you earn R200 000 per year and you have debt totaling R500 000, you would need R2.5-million in cover.
Where the problem comes in
The problem, or rather complication, usually comes in when the broker tries to sell you a policy that has an investment component to it.
For example, he or she will suggest that you include X amount as a savings portion to your policy. So after 20 years (or when the term of your policy ends) you will get the money back.
Beware of this pitfall
However, beware of this: you should rather keep your investments separate from a life policy as the returns are usually below average.
In addition, let's say you accumulate R100 000 savings in the policy, and you die, your heirs will only get back the life component while the insurance company will usually keep the investment proceeds.
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