The Insurance Industry love to play with words, probably to impress us, but all they achieve is to cause more confusion. So, let’s try and clarify “Life Cover.”
The phrase refers to Life assurance that will provide a lump sum payout to the beneficiaries of your insurance policy, should you die during the term of the policy contract. Life cover therefore provides cover against financial loss resulting from death or disability.
Why should I have Life Cover?
Is there anyone who depends on your financial support? If the answer is yes, you need life cover. If you have a bond and you do not want to leave your loved ones with the burden of paying for it after your death, you need life cover. Talk to anyone who has lost the main breadwinner in a family and listen to what they have to say.
Use life cover for the right reasons—to cover specific debts or provisions. Remember that the benefit does not increase or keep track with inflation. There are so many considerations, i.e. should you include life cover with your Retirement Annuity? There is a good argument against this—the best is to talk to a qualified, expert insurance broker.
How Much Cover, How Long and When?
These are all questions to consider before you take out any type of insurance. It is vitally important to know the facts and to ensure that you deal with a qualified insurance advisor. You do not want to end up paying for cover you don’t need. Because your circumstances change you also need to review your cover regularly. Consider all the add-on benefits available, as well as the flexibility of the cover—can you make changes to the existing policy?
How much life cover do you need? ENOUGH! If you take out insufficient cover that won’t cover your bond, your family may still loose the roof over their heads. You need to consider all the factors such as your age, marital status, dependants, your income and outstanding debts. Don’t forget about estate duty and funeral costs.
Forms of Life Cover
Term Insurance covers your life for a specific period of time. The most common example will be where you take out term insurance while paying off your bond. This insurance is not expensive and you can also add benefits such as lump sum disability to it. The downside – there is no accumulated investment value and after the set period of time, the cover expires.
Mortgage Insurance has a declining value as the payout will be equal to the outstanding balance of the mortgage.
Don’t forget about your other debts—if your credit cards, overdrafts or other account debt is significant, you can take out life cover to ensure you don’t leave behind a legacy of debt.
Whole Life Cover refers to the traditional insurance policy as we all know it, you are covered against death and the policy pays out a guaranteed benefit when you die. You have the option of annually increasing the premiums to protect you against inflation. When you purchase a whole life policy you are medically underwritten.
Get life cover while you are still young, the older you get the higher your premiums will be.
Universal Life Cover includes an investment element. It does not guarantee a growth rate as it depends on the performance of the investment (that is why you should deal with a specialist broker when investing in these policies.) Universal life cover policies are popular because rapid growth is always a possibility.
Endowment Policies: combines risk and investment. It is actually a savings plan for a fixed period of time during which you make fixed monthly payments. On the expiry date you receive a lump sum payout. The difference lies in the fact that you, rather than your beneficiaries benefit from the policy. The life insurance element of the policy will pay out should you die before the maturity date.
H.I.V. Positive: South Africa is at the forefront of providing life cover to people who are HIV positive.
Disability Cover: Taking out the right disability cover depends on factors such as your age and your occupation.
What legacy are you going to leave behind?
Consider your life cover.