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What is Life Insurance?
Life insurance is a type of insurance that covers the life of the insured person. If the insured person dies, the insurance company agrees to pay out a sum of money to beneficiaries listed on the policy. These beneficiaries can be your spouse, children, family members, other loved ones, or anyone the owner of the policy chooses.
The owner of the policy is the person who pays the monthly premium for the policy. The owner and the person insured are not always the same person. In exchange for the payments the owner of the policy makes, the insurer insures the insured. They will pay out to the beneficiaries listed on the policy.
How Life Insurance Works
Insurance policies can sound boring or complicated. They are often long documents that go into all sorts of details. But these are some of the most important facts:
- The policy is the document that sets out the details of the agreement between the insurance company and the policy owner (you).
- Premiums are payments you, as the policy owner, make to the insurance company. The amounts will be detailed in the policy itself.
- The person who owns the policy is often called the policyholder or policy owners. The person who owns the policy can be the insured person, but it does not have to be.
- Beneficiaries are the loved ones that get the payout when the insured person dies. Beneficiaries must be specified in the policy document. You, as the policyholder, can choose who your beneficiaries will be.
- The policy will pay out a large amount of money that is specified in the policy. This amount is often referred to as the death benefit. Insurance companies each have their own process for claiming once the insured person passes away.
- As with all insurance policies, there are terms and conditions, and there are exclusions. In other words, some policies only cover you for certain kinds of deaths, and some only cover you for a certain period. If your policy only covers accidental death, but you die by suicide, for example, the policy may not pay out. Terms can be the necessity for a death certificate to be presented before a claim, for example.
- There are diverse kinds of policies with different benefits and prices. It is often best to get a policy when you are younger to pay lower premiums.
Types of Life Insurance
Although each insurance company offers different benefits, prices, and exclusions in their policies, we can group the type of life cover you get into two main categories. These are term life insurance and permanent life insurance, also called whole life insurance. Learn more about the kinds of life insurance here.
How Does Term Life Cover Work?
Term life policies can be much cheaper than whole life policies and offer you fixed rates. That’s because they only cover the insured for death for a specific, predetermined time. For example, a term policy may only cover you up to age sixty. If you die after you are sixty, the policy will not pay out to your beneficiaries.
What is Whole Life Insurance?
Also called permanent life insurance, this type of policy covers you for your entire lifetime as long as you pay your insurance premiums each month. In other words, there’s no age limit on when your policy can pay out. Of course, you will also need to ensure you meet any requirements in the policy in order for it to pay out when you die.
Whole life cover also includes an investment element that makes the premiums more expensive. It means that if you cancel the policy, it will pay out the sum you invested up to that point. To learn more about what amount is and how it is calculated, you can speak to your insurer.
Will Life Insurance Pay for Suicidal Death?
It depends on the circumstances and the timing. Many South African insurers won’t pay out the claim for suicidal death if it happens within two years of you getting the policy. Some insurers do not cover suicidal death at all. Others have different waiting periods. It is best to compare the exclusions and terms in different policies before choosing one.
Life insurance companies then investigate events surrounding your death to make sure you did not contravene any of the rules laid out in their policy. It is important to be honest and up front when you are buying the policy about every detail. This will help when the claims process is underway. If a person lies on their policy, their claim can be rejected.
Are Life Insurance Payouts Taxable?
If you have listed your beneficiaries in your life insurance policy, then your death benefit is not taxable in South Africa. The interest on the payout may be taxable, however, and there are other factors that come into play too. Learn more about whether your death benefit will be taxed here.
Why Life Insurance is Important
Life cover is important, because the payout is designed to provide for your family or loved ones when you no longer can. If you should pass away, they will not need to worry about where to find the extra income to maintain their lifestyle. Your life insurance policy can secure their financial future.
Which Life Insurance is the Best in South Africa?
What’s best depends on what you need. If you have a big family and want to include many beneficiaries, a policy that allows for this will be best. To find the best affordable life insurance policy for you, look at what the policy covers, what added benefits you get, what requirements there are, and what exclusions there are.
Also look at your premiums and whether your rate is fixed or not. Fixed rates can be easier to plan for. Your policy should give you the estimated price increase year-on-year for twenty years at least.
Who Needs Life Insurance?
Anyone who has someone that depends on them financially could benefit from having life insurance coverage. Those who have purchased a home may also need life insurance to cover their bond. Business owners and people getting home loans can also benefit from a life insurance policy. From young to old, you can protect your loved ones financially with life cover.
How to Get Life Insurance Quotes
It’s easy! Just fill in our online form and wait for the ideal insurance company to call you. You can ask them questions and compare your options without spending any money.