Life Cover: The Basics
The life insurance industry in South Africa is notoriously tainted by
bad publicity. Stories about extortionate premiums paid by workers
barely earning enough to survive do not help to salvage the industry’s
already struggling reputation. Whilst these stories may carry some
truth, our job is to help you make up your own mind by separating
the facts from the opinions. Follow these 5 simple steps to better
understanding the life insurance industry and the value it may (or
may not) bring to your life:
Step 1: Understanding life insurance versus life assurance
Life insurance or life cover requires you to pay regular premiums to
an insurer over a specific period of time. If you die during the stated
term of the policy, the insurer pays-out a lump sum to your chosen
beneficiary. If, however, you escape death and outlive the policy
there is no pay-out and your premiums disappear into nothingness.
Life assurance has an added investment component and is not taken
out over a set period of time. Instead, premiums are paid throughout
your lifetime and they build in value. The amount of pay-out received
by the beneficiary is dependent on how long you have paid premiums
and the investment performance of the insurer.
Typically, life assurance policies are more expensive than insurance
policies due to the added investment opportunity and the fact that
there is a guaranteed pay-out regardless of when you die.
Step Two: Understanding your needs
Life insurance policies come in a variety of shapes and sizes. It would
take much more than the 5 steps of this article to discuss all the available
variations, but the key thing to remember is that you need to select a
policy best suited to your individual needs.
For example, Funeral Insurance Plans pay out a lump sum to be used
exclusively towards the costs of arranging a funeral. These plans are
more suited to those that have limited long-term financial obligations.
In comparison, Salary Insurance Plans will be based on covering a
certain percentage of your monthly salary. These plans are more
appropriate for individuals who will require an income value similar to
their existing salary (for example, if you are required to a pay regular
monthly bills that are close in value to your salary). Disability Insurance
Plans provide a pay-out only in the event that you become disabled and
unable to earn an income.
To decide on the best cover to suit your needs, you need to consider a
number of different factors including the following:
Your age and domestic circumstances
Your health situation
The needs of your dependants
Your debts (for example a bond on your home or a car loan)
To help you understand how these factors come into play, consider these
two examples:
o Tumi is a 30 year old single parent to two young children. She is
responsible for paying all bills (including a bond on their home) and
school fees for the children.
o Michael is a 40 year old business owner. He is unmarried and has no
direct dependants. His home and car were purchased with cash and he
does not have other unpaid loans.
Whilst Tumi will require more comprehensive life cover to account for her
current expenses as well as future obligations (such as the costs of sending
her children to varsity), Michael is likely to opt for little or no cover.
Step Three: Choosing your beneficiaries
When applying for a life insurance plan you will need to stipulate a
beneficiary or beneficiaries. Usually, you will need to identify a primary
beneficiary who will receive the pay-out on your death. Secondary or
contingent beneficiaries will also be identified should the primary
beneficiary die before the pay-out is finalised.
Step Four: Calculating your premiumst
Once you approach an insurance provider for a quote, you will need to
disclose your personal information including any health issues for your
monthly premiums to be calculated. The younger and healthier you are,
the lower your premiums are likely to be. Disclosing all relevant
information is critical as the insurer could refuse to pay-out for reasons
of non-disclosure.
Step Five: Choosing an insurance provider
The life insurance industry is a very competitive space with a handful of
big providers competing for your monthly premium. This is where doing
some research is essential to making sure that you find a provider that is
best suited to you. When you first start out, you might receive several
quotes and feel inclined to choose the provider that requires you to pay
the lowest premium.
However, there are a number of other questions that should be part of your
decision-making process:
How reputable is the insurance provider in terms claims payouts?
Does the insurance provider offer cash back benefits if no claims are made
over a certain period of time?
Does the insurance provider reward you for reaching certain life milestones
or making improvements to your health?
What other benefits are available (for example regular health checks or
assistance in preparing a will)?
Call us to assist you ... 0861 450045
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