Many people with dependants and loved ones choose to take out life insurance so that should anything happen to you; your family will be protected against financial difficulties as a result of your death.
We continually hear people, businesses and advertisements telling us that we should insure our lives, but how does one actually go about it? There are a number of important steps along the process to make sure that you are getting the best cover for your needs and budget.
Life insurance is intended to provide financial support for those who depend on you in the event of your death or a disability that prevents you from providing for them. If you don’t have any dependants, chances are that you don’t really need to take out life insurance.
Before you sign-up, it is important to understand if or why you need it. If you are making a significant contribution to someone else’s financial well-being, then it would be a good idea for you to invest in a life insurance policy.
How much can I expect to pay per month?
The premium you pay for life insurance is affected by a number of factors, including (but not limited to):
- Medical circumstances and needs
- Whether or not you smoke
Decide what kind of life insurance you need, as there are a number of categories to choose from:
- Whole life – the policy is available from when you take it out to the day you die. Coverage could last a number of years, so this type of life insurance is usually more expensive.
- Term life insurance – only lasts for a specified time and is less expensive than whole life insurance as it does have an expiry date.
- Variable life
- Universal life
How do I choose?
If you are in a position to choose term insurance, this is a cheaper option. It would be wise to choose term insurance if your dependants would likely not rely on you forever. For example, parents often choose term life policies that would expire once their children have moved out of their home and are on their own two feet financially.
Time to do the math! You need to understand the financial needs of each of your dependants so that you know how much money you would like to invest in life insurance. This figure depends on how much money each dependant needs for each year – ideally your life insurance policy should reflect this amount.
To work out how much money you would like your life insurance to pay out should anything happen to you, calculate the annual needs of each dependant (remember to leave some room for inflation and changing needs) and multiply this by the number of years the dependant will need your support. You can then add up the total amounts for each dependant to reach the final figure.
TIP- Remember that your needs are specific to you and although you can rely on some of the guidelines you read, your situation and the needs of your dependants should be based on your own experiences.
You have decided that you would like the take out a life insurance policy and you know what kind of coverage you need. The first and probably most important thing to do is to shop around and get as many quotes from different insurers as you can. When you compare premiums and the benefits of each scheme you can see which would work best for your situation.
TIP- Avoid life insurance companies who claim that they won’t turn anyone down or ask for a medical examination, as these companies would attract higher risk groups, which could often mean higher premiums being transferred onto you. If you are in fairly good health and could pass a physical examination, rather look for a plan that does do some screening before accepting you as a client.
Once you have an understanding of your needs as well as the different policies available, you can either turn to online insurers (which tend to be cheaper), or speak to a broker.
TIP- There are many online insurers available, including:
- Online insurance through FNB, FNB Life Cover (only available to current FNB clients)