Cover for only as long as you need it
The prime reason for buying term life insurance is to provide cover for financial responsibilities for the insured or his/her beneficiaries.
Examples of such responsibilities include debt, care for dependents, tertiary education, funeral costs, or a mortgage.
Even the biggest optimist must contend that unexpected life-changing events are bound to happen. Taking out insurance makes provision for your future and ensures that your financial responsibilities are well taken care of when you no longer can.
All advice provided in this article is for information purposes only and is intended to provide you with the facts of what term life insurance is to further your understanding of these products. It is not intended as financial advice prompting you to choose one product over another. This, as will be discussed herein, is best done by a qualified financial adviser.
Does insurance have any additional benefits?
Apart from paying out a lump sum to your chosen beneficiaries when you die, some insurance products do not have any other benefit as they are not linked to an investment option such as is the case with life assurance.
Is Term-life insurance cheaper?
As a result of the lower premiums applicable to life insurance (depending on the period that applies), consumers sometimes choose to buy term life insurance rather than permanent life insurance products.
Lower premiums apply to these insurance products, for an individual for the same benefit amount, as permanent life insurance products, also because these products are less complicated. It is also relatively easy to cancel an insurance policy.
Who needs insurance?
In essence, everyone needs some form of life insurance, unless your children are grown up and you are living on your own, or in the case that you are young, single, and responsible only for yourself.
A consumer that is fairly close to retirement may buy a life insurance policy with a term that expires close to his/her date or age of retirement. Such a decision is based on the assumption that by the time he/she retires, he/she would have accrued sufficient funds as part of his/her retirement savings to provide financial security for the claims.
How do I calculate how much insurance I need?
Your family’s monthly expenses amount after your death should be the guiding factor, while ongoing expenses such as a mortgage and tertiary education (if not settled by the time you die), should also be included in the calculation.
Add these amounts together and provide an amount that you would like to have paid out as a lump sum when you die. This should be the total amount and will determine the premium.
When should I get Life insurance?
It is critical to buy any form of life insurance while you are still healthy (see below for information about renewal periods and proof of insurability), and when your children are still young.
It is important to consider that the period and lump sum amount of the policy should provide for them until they are finished with their tertiary education and in a position to support themselves financially.
What steps should I take before taking out insurance?
As term-life insurance is still insurance, consulting a qualified financial adviser is the first step before you consider taking out any insurance product.
Should your policy be renewed annually?
When opting for an insurance policy or product, it is important to note if there is an annual renewal term, which means the policy has to be renewed annually.
Renewal cut-off periods might apply as this varies between providers. A critical factor to consider when purchasing an insurance policy with a renewal period or cut-off is the chance that your health might take a turn for the worst.
If it happens, for instance, you contract a terminal or critical illness before it is up for renewal, it will not have a detrimental effect on your premiums or the duration of the policy, but it will hurt your ability to renew.
If you are – as a result of contracting a terminal illness – deemed to be ‘uninsurable’, you will not be able to renew your insurance policy, even if you are only likely to die after the term of the policy has already expired.
What is level Term-life insurance?
Many consumers also opt for another form of life insurance where the premium paid each year remains the same for the duration of the contract. This is known as level-term life insurance. Common terms for these types of policies are 10, 15, 20, and 30 years.
While most of these policies are renewable should you want to extend the insured period, this is not necessarily guaranteed, and consumers are advised to check for proof of insurability (i.e. continued good health as explained above) as a condition for renewal is included or if renewal is guaranteed (no proof of insurability is required).
What can affect the renewal of my insurance policy?
Guaranteed renewal does not apply if the insured’s health deteriorates significantly during the insured period and if poor health makes it impossible for the insured to provide proof of insurability. In many instances, consumers have the option to convert a term life insurance policy into a more permanent type of life insurance product, such as whole life or universal life policy.
When are insurance premiums returned?
A form of term life insurance offered by many financial services providers, including the likes of Discovery Life and Outsurance gives you a return of premiums paid during the policy term if the consumer or insured outlives this insurance policy.
The expiry term for many of these policies is 15 years, after which the majority of your premiums paid up to that time (less any fees and expenses, these are retained by the insurance company) will be returned if the term has expired and you have not died.
It is important to note that this form of insurance usually attracts higher premiums than those that apply to a regular-level term life insurance policy.
What should I consider when taking out insurance?
When making any financial decision, from taking out funeral cover to buying life insurance, your needs, and reasons for considering such a purchase should be the driving force, especially if you are a first-time buyer. Your current income and lifestyle should determine whether you need term life insurance or can wait a while longer to invest in that.
These aspects are the driving force behind ever-changing legislation to force South Africans to be more disciplined with their money. Having the right attitude about money is the first step, and for many, this starts with becoming financially literate.