Life Insurance

Life insurance is essentially a contract between a policyholder (the person who takes out the contract) and the insurer (the insurance company who offers the contract). The contract stipulates many terms but it essentially states that the insurer agrees to pay out a lump sum of money or smaller monthly sums (referred to as the “benefit) to the policyholder’s beneficiaries in the event of their death or an illness/injury that prevents them from working to generate an income. The benefit will only be paid out if the policyholder pays the agreed-upon monthly premiums.

Think of life insurance as a financial shield that will give you peace of mind knowing that, should you pass on or become critically ill, you will still be able to provide for your loved ones so that they do not experience any financial difficulties.

Life insurance provides cover when an unforeseen event occurs and you can no longer continue to financially provide for your loved ones. When this happens, your insurer will pay out a benefit in accordance with your policy plan and this will then help to provide your family with financial protection. Generally, this benefit will cover any expenses that the beneficiary needs it for (with emphasis on the word need), such as the bond on the family home, university fees for students, and the costs incurred when planning a funeral.

There are four main categories of life insurance in South Africa, namely, life cover, income protection cover, critical illness cover, and disability cover. Each type of cover varies in what it will pay for as well as how the money from each policy can be claimed.

• Life Cover

  Leaving a legacy for your people is one way that you can make sure they are provided for in the event of your passing. Depending on your plan and the terms of your insurer, life cover will pay out to cover everything from your family’s usual living expenses to big debts and funeral expenses.

  As long as your policy is active (and depending on its terms and conditions), a claim will be paid out in almost all cases of death due to illness, accidental causes, natural causes, and suicide (unless it happens during a particular exclusionary window laid out in the policy).

• Income Protection Cover

  Your greatest asset as an adult is your ability to generate an income so that you and your loved ones can live comfortably. If you were to become disabled or ill and you were no longer able to work, then income protection cover would ensure that you still receive a monthly income similar to what you usually earned.

  The monthly pay-out of an income protection cover policy can be used to take care of all of your financial expenses that your salary would have paid for and it will help you to maintain the lifestyle you are used to.

• Critical Illness Cover

  A critical illness policy will provide you with financial aid if you are suddenly diagnosed with an illness that will drastically change your lifestyle. It will pay out a once-off tax-free lump sum that you can use to pay for your life adjustments and any medical shortfalls that are not covered by your medical aid plan.

  Recovering from a critical illness often means that extra costs are incurred for you and your family e.g. altering your home or car to accommodate your illness. A policy such as this will alleviate the burden of a potential loss of income as well as cover the unexpected expenses that are related to your illness.

• Disability Cover

  Much like critical illness cover, disability cover protects you and your family if you are unable to do your job or you can no longer do normal day-to-day functions due to an injury or disability. Depending on your insurer and the policy plan you choose, if you become disabled during the term of your policy, then you will either be paid out a lump sum or a monthly income disability benefit.

  The funds you receive will be paid out to give you financial aid so that you can pay for the expenses that have incurred due to your injury and disability. Your claim can also be used to cover the general cost of living.

Not everyone needs life insurance. But if you have young ones, a partner or other relatives and close friends who depend on your income to cover living expenses, then life insurance will ensure that your loved ones are provided for if you pass away or can no longer work to generate a salary.

No amount of money could ever replace a loved one. But if you have a sound financial plan such as life cover in place, then, at the very least, you can help provide protection for the uncertainties in life. Your life cover policy is one thing you can be sure of and you’ll no longer have to question whether your children, spouse or other relatives will be cared for when you’re gone. Life insurance will protect your dependents from the unknown and it will help them through an otherwise difficult time of loss and mourning.

A life insurance policy will take care of your dependents by:

• Covering the costs of funeral expenses
• Covering estate duty costs
• Paying off any debt that was incurred by the policyholder
• Paying off the bond on the family home
• Paying off any outstanding car payments
• Covering tuition fees of students
• Paying for the general day-to-day living expenses
• Paying for nursing care in the event of illness or a disability

Life insurance brings peace of mind to the policyholder and all of the beneficiaries. With a solid agreement in place, you can rest easy knowing that your family members will not have to experience any financial burden if you were to pass or become critically ill or disabled.

Many disregard life insurances with the idea that it is only for people who have their own families. But even if you don’t have dependents who you need to provide for financially, how are you going to make your own ends meet if you become ill or disabled and can no longer work? And what if you have any outstanding debt and pass away unexpectedly? You might want to spare a moment of thought for the parent, partner or sibling who’ll need to take care of your outstanding payment obligations.

One of the advantages of life cover is that a policy can come in different shapes and sizes and most insurance companies in South Africa offer:

• Life insurance for adults
• Life insurance for pensioners
• Life insurance for parents
• Life insurance for children
• Life insurance for partners

Many insurers will also allow you to take out insurance on someone else’s life too, provided that you have an insurable interest (you will need to prove that you would suffer financial losses or consequences if the person covered should pass). This is why some individuals also apply for cover on the lives of:

• Business partners
• Key employees
• Ex-partners who pay child maintenance

Life insurance is generally paid in monthly instalments (called premiums). The cost of these premiums will vary between individuals and will be determined by lifestyle factors as well as how much cover the policyholder would need.

The factors that will determine your life insurance policy include your:

• Age

  Age is typically the number one factor that affects a premium. The younger you are when you apply for cover, the lower your premium will be. This is because the chances are high that you will be paying premiums for a long time before the insurance provider has to issue a pay-out.

• Gender

  Statistically, females tend to live longer than males. For an insurance company, this means that life insurance cover for men can cost more than for women. This is why females are generally quoted lower premium rates than males.

• Address

  If you live in an area that has a high crime rate, has a problem with life-threatening diseases or offers limited access to proper medical and health care facilities, then you can expect an increase on your life insurance rate.

• Health Status and Medical History

  If you have any pre-existing medical conditions prior to applying for a policy, then your insurer will factor this into your quote. If you smoke and drink excessively, then this could also increase your life cover rate. Essentially, the healthier you are, the lower your premiums will be.

• Occupation and Hobbies

  If you have an occupation or hobbies that could potentially be hazardous to your life (often referred to as “hazardous pursuits”), then you can also expect to pay a higher premium rate for your life cover than normal. How you choose to live your life and the things you expose yourself to can and will affect your monthly life cover premiums.

  You may also want to differentiate between whole and term life insurance. Term insurance is cheaper but expires the minute you stop paying your premiums. Whole life insurance is more costly but it includes an investment sum that will be paid out at your request (even if you no longer pay any premiums).

If you are looking for cheap life insurance, then, if possible, your first step would be to eliminate risk factors. For example, you might want to limit the number of dangerous hobbies you partake in and if you are overweight, you can change your eating habits and start exercising regularly. If you can prove to your insurer that you are making an effort to follow a healthy and risk-free lifestyle, then chances are they will give you a better rate.

With so many insurance providers in South Africa, you can also easily shop around for competitive quotes. You can either request the assistance of a broker to help you obtain quotes for a policy that’s best suited to your lifestyle - or, you can use comparison sites such as Money Expert to do your own investigation into what the different providers offer.