Life Insurance
Secure your future today with the right life insurance policy. Learn the key differences between life cover options and discover which policy best fits your needs.
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Today, there are insurance products available for nearly every aspect of life, including coverage for life, pets, health, vehicles and more. Many people put off purchasing an insurance policy, thinking they are too young, in good health, or that unfortunate events are unlikely to happen to them.
However, imagine the peace of mind that comes with knowing your loved ones are financially protected, no matter what happens. Life insurance can provide that assurance.
This guide outlines life insurance, its advantages and the options available.
What is life insurance?
Life insurance ensures your loved ones will be financially supported if you pass away during the policy term. It is an agreement between you and an insurer and should serve as a cornerstone of your financial planning.
Is life insurance worth it?
Only 10% of South Africans had a life insurance policy in 2022. This low figure may result from common misconceptions, including the belief that people are not wealthy enough to obtain it.
Many people delay thinking about life insurance, either because they do not want to consider the inevitable or because they believe they have a lot of time left. This delay can be devastating for families.
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Do I need life insurance?
If you love someone who depends on you financially, the answer is a yes. Consider taking out a life insurance policy to provide them with an appropriate standard of living. When you die, your loved ones will receive financial support from your coverage.
Given life's unpredictability, this is not something you should indefinitely put off, as it might one day be too late.
What does life insurance cover?
Life insurance primarily covers death benefits, but it is essential to understand the specific coverage details and any exceptions that may apply.
Death benefits
The main purpose of life insurance is to provide a payout to your beneficiaries upon your death. This amount can help with:
- Funeral cover: Assisting with the costs associated with end-of-life arrangements.
- Debt repayment: Helping your loved ones pay off outstanding debts, such as credit cards, personal loans or mortgages.
- Living expenses: Ensuring your family can maintain their standard of living by covering monthly bills and other essential expenses.
Effective retirement planning
While life insurance provides valuable protection, there are certain situations that may exclude coverage:
- Reckless behaviour: Deaths resulting from dangerous activities, such as extreme sports or reckless driving, may not be covered.
- Substance abuse: Deaths caused by alcohol or drug abuse can lead to claim denials.
- Suicide clause: Many policies have a waiting period (usually two years) during which suicide is not covered.
It is crucial to read your life insurance policy carefully to understand the specific exclusions that apply
Additional Coverage Options
Beyond the basic death benefit, life insurance policies often offer additional coverage options that can provide extra protection for you and your loved ones:
- Critical illness insurance: This coverage pays a lump sum if you are diagnosed with a serious health condition, such as cancer, stroke or heart attack.
- Disability insurance: Provides financial support if you are unable to work due to an injury or illness, ensuring your income remains stable.
- Income protection insurance: This insurance offers a steady income if you are temporarily or permanently unable to work, helping to cover daily living expenses.
These options can enhance your financial security and ensure you are prepared for various life challenges.
What are the benefits of a life insurance policy?
Here are some of the main reasons to consider obtaining a life cover:
- Secures protection and peace of mind for your loved ones.
- Offers a safety net for your family, allowing them to stay in their home.
- May be a requirement for securing a mortgage.
How much life insurance cover do I need?
When you decide to take out a life insurance policy, the provider will ask how much coverage you want. This is the amount of money that will be paid out to your loved ones when you pass away.
So, how much coverage do you need? You should think of the life expenses of those financially dependent on you, including their lifestyle, needs and the sources of income they will rely on after you are no longer around.
A general rule of thumb is to calculate the monthly expenses that would impact your loved ones after your death and multiply this by a comfortable number of years. You should think of monthly living expenses, such as bills, rent or mortgage payments, taxes and school fees.
Additionally, consider funeral costs and any debts that may need to be paid off, along with mortgages and inheritance tax, as your life insurance can help settle these.
Consider re-evaluating your life insurance needs when you experience a major life event, such as childbirth, a house purchase, a divorce or a marriage.
If you are unsure what your insurance needs are, it is best to speak with a qualified insurance adviser who will be able to find the right solution for you.
What type of policy should I get
There are many types of life insurance to choose from. Pick a policy that best fits your situation. A financial planner can advise you on which policy is the right choice for you.
Consider how much you can budget for life insurance premiums, as well as the duration of coverage.
Below we explore the most common life insurance policy types.
Whole life insurance
As opposed to term insurance, whole life insurance, also known as permanent life insurance, provides coverage for your entire lifetime, as long as you pay monthly premiums.
This type of insurance is typically more expensive, but it comes with a cash value component that grows over time.
It allows you to build cash value, receive permanent coverage for your entire life, and gradually build your family’s wealth over the long term.
Decreasing term life insurance
Decreasing term life insurance, also known as loan protection insurance, provides a benefit amount that declines over time. This is structured so that, in the event of death or disability of the insured individual, this insurance policy benefit is equal to the declining outstanding balance on a loan of the same term as the policy.
The term of the loan protection policy must align with the loan term to effectively cover the outstanding balance. This type of plan is ideal for individuals who want to ensure their mortgage is paid off, protecting their family from financial strain without overpaying for coverage they may not need later.
Level term life insurance
Level term life insurance is a policy where the payout amount remains the same throughout the policy term. For instance, if you choose R500,000 in coverage over 30 years, your beneficiaries will receive R500,000 if you pass away during that period.
The payout amount is fixed, though it typically does not account for inflation. This also means that your premiums will stay constant. If you want to adjust for inflation, many insurers offer an option to increase your premiums each year to maintain the value of the payout.
Over 50s life insurance
If you are over 50, you can take out life insurance that provides a lump sum payment upon your death.
You typically will not need a medical exam to obtain this policy, as life insurance for those over 50 often does not consider medical history.
Normally, premiums are higher, as individuals in this age group are more likely to claim benefits sooner, and the payout is guaranteed.
Universal Life Insurance
In a universal life insurance policy (ULI), your premium payments are divided between insurance costs and administrative fees, with the remaining amount invested to grow cash value.
One of the main advantages of universal life policies is that they offer flexible premium payment options.
Expat life insurance in South Africa
Holborn has specialists based in South Africa who can help you find life insurance for expats. As an expat, your insurance needs may differ and be more complex.
With so many types of insurance available, our advisers will work with you to find a suitable plan that provides you and your loved ones with the best solution.
Term life insurance
A term life policy covers you for a specific period of time, for example, ten or twenty years. This type of life insurance is typically more affordable.
If you die during this period, then your beneficiaries will receive a death benefit.
So, what happens at the end of a term insurance policy? Since it only provides temporary coverage, your payments and coverage will stop. If you outlive this period and need to renew it, your premium may be higher rates, as they are based on your current age and health.
Term life insurance policies also do not build cash value.
It allows you to build cash value, receive permanent coverage for your entire life, and gradually build your family’s wealth over the long term.
Find life insurance policy with Holborn
Life is full of uncertainties, and being prepared for the unexpected is essential. We offer solutions to fit every budget and ensure your family’s financial security.
Life insurance is not just for older adults; new parents should also consider protecting their families with a policy. Some parents even purchase policies for their children, helping to build a strong financial foundation for their future.
Achieving your financial goals can bring peace of mind. At Holborn, we employ only the most experienced and fully qualified advisers. If you are unsure which financial options suit you best, our advisers can guide you through various solutions to effectively manage risks, reduce uncertainties, and safeguard your loved ones.
Life insurance is not just a policy; it is a promise to protect your loved ones. Take the first step toward securing their future today!
Frequently Asked Questions
Both terms are often used interchangeably. Life insurance refers to the contract itself, while life cover typically describes the amount of financial protection provided.
