What is the significance of life insurance and why is it important?

Life insurance plays a crucial role in ensuring the financial well-being of those who depend on your income to meet their basic needs. It impacts children who are still attending school (and not yet self-sufficient), as well as your spouse or parents and anyone else who depends on your salary.

When selecting a life insurance policy, choose one that aligns with your specific requirements. The amount you wish to be insured for, along with factors such as your age, overall health, and risk profile, determines your life insurance premiums (monthly payments). Naturally, if you are 55 years old, have a heart condition, and want cover worth R1 million, your premium will be higher than that of a fit and healthy 30-year-old.

What should your life insurance pay-out be used for?

In the event of your passing, your family will be overcome with grief and shock. You wouldn't want them to worry about daily living expenses, funeral costs, or their financial security now that you are no longer there. However, it's important to be mindful of the finite nature of the funds and encourage them to be responsible to ensure their long-term financial stability. As with any lump sum, it is good to have a plan in place and identify the expenses that need to be covered.

The funds can be allocated towards the following expenses:

  • All outstanding funeral expenses not covered by a funeral policy
  • Financial support for your children
  • Replacement of your income
  • Settling a mortgage or other outstanding debts

Why is disability insurance necessary?

Disability income insurance provides cover by replacing your income in the event that you are unable to work due to an accident or illness, either in your current occupation or a similar one. The monthly premiums you pay depend on the available benefits for individual coverage, the desired insurance amount, and your personal risk profile. Typically, disability insurance offers a lump sum payment to beneficiaries. If your policy pays out a lump sum, it is advisable to invest some funds to ensure long-term financial security.

Key points to bear in mind:

  • Complete honesty and disclosure of all relevant information is important when signing up for an insurance policy.
  • Any changes in your circumstances, such as transitioning to a higher-risk job or starting to smoke, should be promptly communicated to the insurance company.
  • Pay your premiums on time. If your policy lapses, you won't have cover. Life and disability insurance are intended to safeguard you and your family against income loss, so don’t end up in a situation where insurance fails to pay out because of lapsed payments.
  • Keep your beneficiaries up to date, as changes in your circumstances may mean you want to change your beneficiaries (e.g. having more children).