Life insurance or life assurance is cover that pays out on the death of the life insured. The objective of the policy is to make sure that family and dependents are adequately provided for in the event of death.
Features of Life Insurance
- Term life provides cover for a certain period hence the name term life. It is usually used to match a specific liability such as a mortgage or home loan. This is the cheapest form of life insurance. The policy only pays out if you die during the term of the policy.
- Whole Life insurance remains inforce for your entire life hence the term whole life. The main objective of a whole life policy is to provide for family and dependents on death.
- Ancillary benefits like disability cover and dread disease cover can also be bundled with a life insurance policy.
Advantages of Life Insurance
- Provides a cash lump sum on death that helps offset the negative financial consequences of a death to a breadwinner.
- Proceeds of a life policy are tax free in South Africa
- Some lenders may require life cover when providing a home loan
- Modern life policies are flexible and allow the insured to structure them to fit their needs
Disadvantages of Life Insurance
- Higher costs associated with life policies make it less favorable especially compared to unit trusts
- Transparency issues surrounding commissions on life policies
- Paperwork associated with life policies, disclosures and the need to go for medicals.
Notwithstanding the negatives the advantages far outweigh the disadvantages of life insurance and it still one of the easiest and most cost effective ways to provide for you family on your death.
How Do You Qualify for Life Insurance
- Be Over 18 years old
- Go for medicals and be accepted by the Insurer
How Much Life Cover Do You Need?
The answer differs from person to person – as a rule of thumb you need a lump sum to cover all your outstanding debt. You will also need a lump sum to replace you current income. It is usually advisable to speak to a financial advisor who will be able to do financial needs analysis and calculate exactly how much life cover you will need.
Find out how much life cover you need by completing out Life Cover estimator here.
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