Life is risky business. We know it; our ancestors knew it; and our descendants will definitely get to know it too. For as long as humankind has been in existence, we have tried – in one way or the other – to manage the many different risks that are part of life.
A short history
Cavemen hunted together to manage the risk of starvation, lived together to manage the risk of neighbouring clans’ attacks and managed the risks presented by death through taking care of ‘family’ units in the clan who have lost a family member.
This could be viewed as the first, primitive form of ‘insurance’. The earliest types of monetary based risk insurance mechanisms, more akin to those that we know today, only developed many thousands of years later when first the Chinese (3rd millennium BC), and then the Babylonians (2nd millennium BC) started managing the financial risk of losing their boats, ships and precious cargoes in rapids, storms, accidents and – lest we forget – to the much dreaded pirates that prowled the rivers and oceans in search of some booty.
It took a further three-and-a-half thousand years, before the Romans and the Greeks (circa 600BC) had the foresight to create Health and Life Insurance. The way in which Life Insurance worked was that, should a family lose its breadwinner, the insurance society would pay the funeral costs and take care of the family afterwards.
Although Life Insurance, as we know it today, is more sophisticated, refined and comprehensive, it is – in essence – still based on principles similar to those that the Romans and the Greeks used more than 1,400 years ago.
What is Life Insurance?
Although death is a 100% certain risk every living being on this planet faces, exactly when death will occur, is an unknown. It is this unknown that creates the risk. If we knew when we would die, we could perhaps ensure that we had no debts at that point in time and we could perhaps have saved enough money to ensure that our dependents would not face financial hardship.
But, the fact of the matter is that we don’t know and creating a debt-free-with-enough-savings situation on time, a Mission Improbable.
This is where Life Insurance comes into the picture. If you hold a Life Insurance policy, your nominated beneficiary or beneficiaries will receive a predetermined sum of money from your Life Insurer upon your death. This money will help to eliminate or mitigate the financial risks (such as outstanding debt, inadequate funds to cover living expenses etc.) they will be faced with after you die.
How does Life Insurance work?
When you purchase a Life Insurance policy, you enter into an agreement with the Insurer. The insurer agrees to pay a certain amount of money to your beneficiaries upon your death, and you, in return, make a commitment to pay insurance premiums to the insurer at specified intervals.
Life Insurance Application Form
When you apply for Life Insurance, you will complete a confidential form where a variety of personal questions are asked. When completing the form, absolute honesty is essential because the Life Insurer will use the information you provide to assess the risk you pose.
The size of the premium you will pay to the insurer will depend on the amount of cover you have selected, as well as your risk profile.
Cover: Cover is the term the insurance company uses for the amount of money you insure your life for. The higher the cover you select, the higher your premium will be.
Risk profile: Your risk profile is determined by looking at your age, your health, the health of your parents, your habits, your education, your occupation, your gender and your hobbies, amongst others. The insurance company makes use of actuarial science to allocate a numeric value to your risk profile. Policy holders with low risk profiles will pay a lower premium than those policy holders with a high risk profiles. For example, a 30-year old non-smoking female, who plays chess for a hobby and is a data capturer by profession, will pay a lower premium than a 30-year old smoking female, who has skydiving for a hobby and is a scuba diving instructor by profession.
Life Insurers are very responsive and quick when it comes to paying beneficiaries after the death of a policy holder, so you don’t have to worry about your beneficiaries having to wait for months on end before the money becomes available.
There is very little red tape. Generally, the Life Insurer will ask your beneficiaries to submit your Identification Document and your Death Certificate before they pay the money across. Other documentation could also be requested under specific
Life Insurance is a relatively inexpensive, simple and effective solution. It allows you to continue caring for your family / dependents and ensures that they will not have to endure any unnecessary financial hardships after your death.