Life Insurance Basics

We explain what life insurance is, how to calculate what you need to save, what factors affect your premium, how to set up a beneficiary and more.
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Published: Monday, May 5th 2014
General
Life insurance can be a daunting task, we want to make your decision easier by giving you a few guidelines and explanations so you know exactly what to expect. 1. How Would Life Insurance Help Me? Life insurance is created to financially protect the people in your life that rely on you for financial support. If you were to die unexpectedly, life insurance can be used to pay off outstanding debt liabilities and provide financial support to your dependents, your family for example, until they are in a financially viable position to live without it. Life insurance provides peace of mind for the ones you care most about, especially if they depend on you for income for basic needs. This policy would provide financial help for a funeral, help with unpaid bonds and debts as well as help your loved ones out with payments to subsidise your monthly income. Luckily, life insurance is available to anyone and people are advised to start a policy when they are young to prepare for any future unexpected situations. 2. How Would I Calculate How Much I Need to Save? You would essentially want to replace your income earning potential. Use this guideline to calculate how much life insurance you would need. 1. Take your gross monthly income x 12 = annual income before tax 2. Calculate the number of years left to your expected retirement age, i.e. retirement age – current age = number of income earning years left 3. Multiply your gross annual income x the number of income earning years left = the life cover required to replace your income 4. Add the amount of debt/liabilities you currently have to the third step 5. Subtract any current life insurance you have = how much life cover you should potentially have Guidelines courtesy of Hippo.co.za 3. Setting Up a Beneficiary: A beneficiary is the person who you would select to receive the pay-out of your life insurance policy in the event of your death. You are able to choose anyone you want to be your beneficiary, you can also have multiple beneficiaries. For example, you may list your wife and children is separate beneficiaries so each person receives a portion of the pay-out. 4. The Nitty Gritty Your life insurance policy will only become active if your application has been approved by the insurance company and you have paid your first premium. Some companies may even provide temporary life coverage during the application process. Your insurance company will want you to undergo an HIV test at their own expense, other than that you will not need to have a medical examination. 5. Calculating Your Insurance Premium Each life insurance policy premium is personally customised as each client will pose unique risks. Risk factors include: 1. Age: The younger you are, generally, the less you pay because you have less risk of dying of natural causes. 2. Gender- Women have slightly lower premiums because statistically women live longer than men. 3. Health- A history of illness or current health conditions will increase your premium as you are more at risk compared to healthy individuals. 4. Lifestyle- If you have any adventurous hobbies like skydiving or extreme sports, you will have a higher premium. ©Diane Moalem for Compare Guru