The Ultimate Guide to Life Insurance – Part 1
What exactly is life insurance, and why is it so important?
Before we answer, ask yourself a few questions – who would cover funeral costs and medical bills in the event of your death?
Would there be sufficient funds for home loan payments, children’s education, and other unforeseen expenses?
Our guide to life insurance takes a closer look at this vital insurance product which is often overlooked –
with potentially devastating financial results.
HOW DOES LIFE INSURANCE WORK?
Life insurance involves paying monthly premiums to an insurer, in return for having a relatively large sum of money paid out to
nominated beneficiaries in the event of your death.
The premium you will pay is proportionate to the size of the benefit provided, and is based on several factors, including the
likelihood of a claim occurring. The amount of cover available is usually limited based on the policyholder’s income.
You should re-evaluate your life insurance needs when experiencing a major life change such as marriage, divorce, or the birth
of a child, or when purchasing a substantial asset like a house or business.
THE SOUTH AFRICAN LIFE INSURANCE LANDSCAPE
The Association for Savings and Investment South Africa (ASISA) measures South Africa’s life and disability insurance gap
every 3 years.
Their latest figures paint a concerning picture of the current state of the South African life insurance landscape.
The 2019 ASISA report found that around 14 million families would face a combined insurance shortfall of almost R29 trillion
in the event of the main breadwinner losing the ability to earn an income.
Statistics show that while earners under the age of 40 face an average insurance shortfall of R1.4 million for life cover, those
aged over 55 on average tended to have more life cover in place than actually necessary.
“The insurance needs of older earners tend to be lower than the cover in place, often as a result
of group life and disability cover through years of membership of an employer’s pension fund.
Younger earners would need to rely on the income from their insurance for much longer following
a death or disability event than older earners drawing closer to retirement.”
Rosemary Lightbody, ASISA senior policy advisor.
Nearly 58% of South African earners are aged under 40, meaning that the majority are likely to be significantly underinsured.
This age group is also more likely to have debts including mortgage bonds and car payments, as well as having to save for both
their children’s education and their own retirement, making the need to protect future income absolutely paramount.
“It is important for young earners to realise that they are usually able to buy life and disability
cover at much lower premiums than older earners, because they are less likely to have developed
serious medical conditions likely to push up premiums as a result of the higher risk.”
LIFE VS DEATH
ASISA also highlights the fact that there is still a misunderstanding of the difference between life insurance and death cover, with
48% of respondents believing that life insurance and death cover are the same thing.
Let’s look at the key differences between life insurance and accidental death cover:
– Life insurance policies are designed to pay out when an insured party passes away due to various causes including old age, cancer,
most types of illnesses and accidental death.
– Premiums are charged for your whole life, and provided these are paid the insurance company will pay the agreed amount of cover
to the nominated beneficiaries in the event of your death.
– Accidental death cover pays out only if your death occurs due to an unforeseen accident, such as a road accident, or by drowning,
fire, electrocution, hijacking or murder.
– Accidental death cover is usually cheaper than life insurance as it does not cover death from all possible causes.
In part 2 of our life insurance blog series, we’ll take a closer look at the different types of life insurance available, and why having a
trusted advisor to ensure that you purchase the correct amount and type of life insurance for your individual needs is perhaps the most
important choice of all.
In the meantime, our team of insurance experts are standing by to answer any questions you might have – contact us today to discuss
your life insurance requirements.