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Life Insurance South Africa: Everything You Need To Know

Compare Guru
2020-08-18
Do you have people who depend on you financially? Kids? Elderly parents? This article on life insurance is for you and will explain everything you need to know to make things less daunting.

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. 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.

You can compare life insurance quotes with us at any time online.

What Is Life Insurance?

Life insurance is the best way to protect your family from the financial strain that would be placed upon them if you were no longer around. Taking out a life insurance policy with an insurance company, is a signed contract of agreement that in exchange of paying monthly premiums, your beneficiaries will receive a lump-sum payment (death benefit), should you, as the insured, die prematurely.

Who Needs Life Insurance?

While it has been said that not everyone needs life insurance, the general rule is that it is needed if you have dependents, such as a spouse and children who are still at school or are yet to graduate from university. 

In some cases, ageing parents can also be included as a beneficiary if they depend on you. If you have dependents who will suffer financially when you die, chances are you need life insurance as this policy provides cash to your family after your death.

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.

What Are The Benefits Of Life Insurance?

When buying a home, it is common to sign up for a 30-year mortgage, but this could be affected if you die ten years into the mortgage payments. Life insurance can settle your outstanding debt, to prevent your family from being evicted and also provide ongoing income for your dependents until they are able to live without it. 

In the event that you sustain a disability from an accident and are unable to work, it can also provide for everyday expenses such as school fees and utility bills, as well as potential legal and medical costs. 

By taking out a policy, you are thus providing a safety net should these unexpected circumstances occur. 

Who Is The Beneficiary Of My Life Insurance?

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.

How Would I Calculate How Much I Need To Save?

Life insurance forms part of a larger financial plan. Typically, a policy is chosen based on the needs and goals of the owner. How much life insurance you buy depends on the specific financial needs and circumstances of your family. 

Things to consider are: How many kids do you have? Do you intend on paying for their tertiary education? How big is your mortgage and what other debts do you have? It is important to find a balance between being over-insured and under-insured. Paying too much for high premiums can be just as destructive to your overall financial plan as paying too little for the insurance you need to ensure that you are fully covered.

How Is My Life Insurance Premium Calculated?

Each life insurance policy is tailored to your specific risk profile (each client is different). When you apply for an insurance policy, you will be expected to provide a full medical history (including family history) as well as questions regarding your lifestyle. This information is used by insurance actuaries to determine your risk profile and how your premiums will be calculated. 

Factors affecting risk profile:

• Age:

Age is an important factor. The number one factor behind life insurance premiums is the age of the policyholder. If you are young, the chances are that you’ll be paying the insurer for years before they ever have to worry about writing your family a cheque. With this in mind, you’re better off taking out a policy before it’s too late as each year you turn older brings you closer to your life expectancy. Taking out life insurance straight after university may be a little to difficult to swing, but as you settle into the working world it is important to start considering how you will take control of your life. As you start to take on financial dependents so increases the prominence of life insurance. Younger individuals will pay a lower premium, due to the decreased likelihood of dying from natural causes at a young age.

• Gender:

Next to age, gender is the biggest source of pricing. Statistical models are used by insurance carriers to estimate how long someone with a specific profile will be around. The fact is that women, on average, live nearly five years longer than men. Also, females usually pay their premiums for a longer period of time than males, which gives them the benefit of paying slightly less than males. 

On average, premiums are slightly lower for women as statistics have proven that there is an increased probability that they will live six years longer than men.

• Smoking:

It is a known fact that smoking is hazardous to one’s health and puts you at risk for a variety of health ailments. Smokers are regarded as red flags for insurance companies and end up paying twice the amount that non-smokers pay. Both the health and financial implications of smoking could be the push you need to nip it in the 'butt' indefinitely. 

• Healthy lifestyle

The approval process for most carriers normally consists of a medical exam where your insurance company will record your height, weight, blood pressure, cholesterol,as well as other key metrics. They may also require an electrocardiogram (ECG or EKG) to check your heart in some cases. It’s important to get any serious conditions like high cholesterol and diabetes managed before searching for a competitive life insurance rate. Do you have an extreme hobby like racing cars or climbing tricky mountains? If your answer is yes, then you may find it beneficial to spend a bit more on insurance. Any time you engage in high-risk activities, there is an increased likelihood that you’ll meet an early end – a big concern for insurance carriers. Some companies also charge more if you have a relatively dangerous profession such as mining, fishing or transportation. 

• Do you know your family medical history?

Do you know if you cancer in the family? A family history of strokes, cancer or other serious medical conditions may predispose you to these ailments that leads to higher rates. Insurance companies are usually interested in any conditions your parents or siblings have experienced, particularly if they contributed to a premature death. Some insurance companies may put more emphasis on your family’s health than others, however if there is an ailment in the family, it is likely to have some impact on your premium. Now that you have a better understanding about life insurance and the reasons why rates are affected, why do you need life insurance you may ask? Life insurance is important as it reduces the burden on your family by helping to meet any financial obligations that you may leave behind. Taking out a life insurance policy, therefore, isn’t a question of “should I?”, but rather “when should I?” and “how much should I take out?”

Where Can I Compare Life Insurance Quotes?

If you are looking to find the best life insurance policy to suit your needs and pocket, head over to our quote comparison engine where you can compare life insurance quotes online from SA’s top insurers. 

By filling in your details, we can show you a range of accurate quotes from different insurers. Our Gurus can help you to choose the right policy for your needs and will manage all of the set up admin for you too.

Will My Life Insurance Premium Change?

Your monthly premium shouldn’t change unless the policy requires renewal after a certain period of time, insurer dependent. Keep an eye out for renewable policies, they may seem cheaper at the outset but higher premiums may be negotiated after a certain period of time. 

What If I Miss A Few Life Insurance Payments?

If you stop paying your life insurance premiums, your life cover ends. You will then have to create a new policy with your insurer. 

Can Life Insurance Claims Be Denied?

Life insurance claims can also be denied, such as in the case of suicide, which most policies do not cover. Also, if an insurance company suspects that a claim is fraudulent, it will fully investigate the matter. Payments can be denied if a claimant lied about the cause of death or if the policyholder neglected to mention pre-existing medical conditions, hazardous jobs or dangerous hobbies.

There are very few reasons why your life insurance company wouldn't pay out your policy, one main reason being if you were not completely honest when filling out the medical questions when you applied. It may increase your premium but you should keep your life insurance company updated with any significant health changes. Other exceptional reasons for not paying out would include suicide, more details or other reasons will be outlined in your policy.

Life is full of uncertainties; we never know what may come our way. No one has been promised a tomorrow, so we should take every new day that comes as a blessing.

How Can I Lower My Life Insurance Premiums?

Planning for the future of your family is something that should be done sooner than later we have 4 tips to lower your Life Insurance premiums.

Life Insurance is so important when planning for the future of your family but it can get quite pricey, we have provided some quick tips to lower your life insurance premium.

1. Start paying early

This is based off the assumption that the younger you are, the longer you should live. You therefore pay less per month for your life insurance but get the benefit of cover.

2. Stay healthy

It is imperative for you to maintain a good diet, exercise and stop smoking to lower your life insurance premium. The amount you pay is linked to your personal health, if you are a healthy individual, you will not only live longer but also pay less for your life insurance.

3. Keep adventurous hobbies to a minimum

As fun and amazing as abseiling down a sheer cliff face may be, it will drive up your life insurance premium. By partaking in adventurous hobbies that can put your life at risk, you will obviously pay more for your premium because you pose a higher risk to the insurance company.

4. Calculate exactly how much you need

There is no point in paying more than you need to, you should calculate your current expenses and you must account for how much your family will need in the future with inflation in mind. You should plan enough so that your family can survive without your income for a few years, until they can get on their feet without you. 

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.

CompareGuru offers a platform to compare life insurance quotes online and will be able to refer you to a quality insurance company who can tailor a policy specifically for your needs.

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