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Which one should you get first: life cover or a retirement annuity?

By Athenkosi Sawutana

Financial planning can be a brain-racking process because it means making difficult decisions such as choosing the most suitable products for you. The one challenge faced by those who are financially constrained is which product to choose: life cover or a retirement annuity (RA).

Justmoney found out which one will be the right choice for you.

Tip: Speak to your financial adviser for more information on how you can get the best cover to suit your needs.

Firstly, it’s important to note that a retirement annuity and life insurance are two very different financial products, but both are equally important – at different life stages.

Life cover exists to provide funds if you pass away, while an RA exists to build up funds to generate an income in retirement, says Jan van der Merwe, head of actuarial and product at PSG Wealth.

The former helps you manage the risk of dependants not being financially self-sufficient after your death or to settle your outstanding debt. The latter is an investment product that helps you build long-term wealth.

Have a look at the below table to find out how they differ:


Life Cover

Retirement Annuity


Life cover pays the value of the policy when you pass away or when retrenched.

You will receive your RA pay-out when you reach the age of 55, move to another country, or have less than R7,000 in your investment.


Tax is deferred until you withdraw your life cover.

Income from your RA is taxed just like any other income. However, the first R500,000 withdrawn from your RA when you retire will be tax-free.


Administration fees will be deducted from your monthly premiums.

The cost of your RA will also include administration and financial adviser fees.

Death Benefit

Pays out death benefits to your beneficiaries. However, if you outlive the term of your policy, you will not receive any death benefits.

Pays out death benefits to your beneficiaries


Your premiums are determined by the level of risk you pose to the insurer and they will be paid monthly.

Your premiums can be in instalments or a lump sum. And you can pay whatever amount you want, but not less than the minimum contribution set by your provider.


Do you need life cover?

Whether you need life cover will depend on your personal circumstances.

“For someone who is young, with no dependants, or someone who has many assets to leave behind, having life insurance may not be a priority,” says Van Der Merwe.

However, if you’re a homeowner or have a child, for example, the picture changes.

Life cover becomes crucial once you start a family and have financial dependants or even parents and family members who you take care of financially, says John Manyike, head of financial education at Old Mutual.

It pays out a lump sum when you die or are diagnosed with a terminal illness, which can be reinvested to provide your family with an income.

Life cover can also be used to settle your debt or cover your estate duties.

What about retirement annuity?

According to Van Der Merwe, a retirement annuity is an investment product for individuals who are accumulating a nest egg to fund a pool of capital from which they can draw an income once they retire.

However, you could also save for retirement via your employer’s pension or provident fund.

“It’s important to start saving for retirement as early as possible, to save throughout your working career, and not to cash out your retirement savings when changing jobs,” says Van Der Merwe.

Ideally, you should start saving for retirement from the time you start earning a permanent salary, adds Manyike.

If you leave saving for retirement too late or don't preserve your retirement savings, you may not be able to retire comfortably one day, warns Van Der Merwe.

A retirement annuity is a great option to save money for retirement because you generally can’t access your fund credit until age 55, even if you change jobs – unlike a pension or provident fund, where you risk spending all of your money and losing out on the magic of compound interest.

Discuss your financial needs with your adviser who can help you prioritise your savings and investment decisions, and decide what trade-offs you can, and cannot make. 

Our retirement calculator can help you determine how much you're going to need to enjoy your retirement.

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