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Essentially, a life insurance policy is a contract between a life insurer and a policyholder that offers the policyholder peace of mind, knowing their loved ones will be financially secure when they die. It's a means of protecting anyone who is financially dependent on you should you pass away, become disabled, or get a dread disease. Depending on the life insurance policy you take out, you may also get an amount paid out to compensate for the costs of a funeral, which can ease the burden during a difficult time for your family.
There are four parties involved in a life insurance policy. There is the provider, the financial institution providing the insurance (also called the insurer). The insured is the person whose life is being insured by the policy. The person or people who receive the payout should the insured pass away are the beneficiaries.
With dread disease cover, the policyholder is paid out, not their beneficiaries. The final party involved is the owner of the policy. This is the person responsible for paying the monthly premiums. Sometimes the insured and the owner are the same person, but not always.
The purpose of life insurance is to cover your loved ones against the risk of financial ruin should you pass away, so if there is anyone in your life who relies on you for financial support, then yes, life insurance is recommended. Also remember that a dependant is not necessarily a child; it could be extended family members, parents, a spouse or ex-spouse, a business, employees, a dependant adult, or a business partner.
Life insurance can also be used to cover debt, like home or car loans. In some cases, you need to have a life insurance policy if you're taking out credit.
Credit life may also sometimes be added to certain lines of credit, so it's always important to review your policy documents or consult an independent financial advisor.
When comparing life insurance policies, pay attention to any exclusions in the contract. Different insurers have different exclusions. For example, many insurers will not cover suicide, and if they do, it may only be after a certain waiting period.
You will also need to consider what kind of life insurance you want. Not all life insurance is solely for when the insured passes away. Some will pay out for dread diseases or disability too. If you work in an industry where injury is a higher risk, then including disability cover in your policy makes sense.
You can also get term cover instead of permanent life insurance. This means the policy covers you for a fixed period only. Using this option could save you money but only works if you can be 100% sure you won't need the cover after the contract period is over.
Before you sign on the dotted line, make sure you understand the policy document, the details of your cover, what's expected of you, and what your provider or insurer is agreeing to. Don't be intimidated by what seems to be a complex decision. Choosing a life insurance policy doesn't have to be hard. If it seems overwhelming, focus on ensuring the cover you get will at least provide your family with the same amount of money you bring in each month for a while after you pass away. You can start comparing quotes for life insurance today with the hippo.co.za online comparison tool to find the life insurance that's best for your needs.
Prices quoted are correct at the time of publishing this article. The information in this article is provided for informational purposes only and should not be construed as financial, legal, or medical advice.