If you don’t know what life insurance is by now, it’s time to educate yourself. Life insurance isn’t advertised as a reminder that you’re going to die one day. It’s advertised as a reminder that your life, and the succession of lives in your family after you, is worth something.
You have more than enough options for life insurance in South Africa or elsewhere in the world when it comes to plans, payment options and policies. But there are a few things you need to think about and consider before blindly approaching an insurance company and missing out on some key aspects.
Do you need it?
Want to know if you need life insurance? Well, if you’re settling down and thinking of starting a family, then you need to start thinking about life insurance. And if you’re already the head of a family with dependents then you definitely need it. Reassure your loved ones that you have planned for their futures should something ever happen to you and that you and find an insurance policy that suits you. Even if you only set up a funeral cover policy, it will help them in the long run.
How much life insurance do you need?
Now that you’ve established that you do, in fact, need life insurance. It’s time to calculate how much you’re going to need. You’ll only be able to work out a rough ballpark figure which you can take with you to an insurance company of your choice and see if they can cater for you accordingly.
Start by adding up a year’s worth of your monthly take-home income (your total income after tax, debit orders and monthly bills) and multiply that by a set number of years for which you want coverage. Add all your debts and estimated child care to the total, as well as your total expenses. You should include your child or children’s education fees into this total as well. Once you’ve worked out this total cost, you can start adding together your current monetary resources.
Add all of your savings, retirement funds, tertiary education funds, spouse’s income and any other insurance policies you may have, to come up with a total amount of financial resources currently available.
Now, take your total amount of resources that you just worked out and subtract it from your previously calculated total of expenses. This is how much insurance you need. There are online insurance calculators that can assist you with this calculation, don’t worry.
Types of insurance
There are two types of life insurance that you will need to consider before taking out a policy: term life and whole life insurance.
Term life insurance is for a specified amount of time generally relating to an insurance “goal”, such as ensuring your child’s tertiary education or paying off debt. You can also implement a term life policy if you need a lot of insurance but are limited in budget.
Your other option is whole life insurance and this covers you, well, permanently for your whole life. The premiums for whole life insurance are higher than term life insurance but it’s understandably so.
These are the two types of insurance but each insurance has their own sets of policies that will be more specific with regards to what you may be looking for. Make sure you have all your information and questions ready for the insurance company.
Research and compare insurance companies
There are a few things to research and compare once you have an idea of how much and what type of insurance you need to make sure you get the best deal. Consider annual benefits and premiums and what is guaranteed or not under your policy’s terms. Work out the total cash value through investment and the risks involved in investing. Find out if the policy fees fall part of the premium or are they a separate cost going towards the insurance company instead of your fund. And then find out, if you have chosen a term life insurance, what the possibilities are of changing it over to a whole life permanent insurance without having to go through a medical examination.
Read between the lines of your insurance policy and make sure you understand everything that requires comprehension. Life insurance is a big but important decision and step in your life and in your family’s life. Make sure you do it right.