Different types of life insurance cover

The beauty about having a life insurance policy is that it enables you to provide for those that depend on you, when you are either permanently disabled or when you die.

 

A life insurance policy will pay out a lump sum, depending on the policy’s terms, after the death of the policy holder, so as to enable the family to settle any outstanding debts, especially those debts that are still to be paid on cars or homes. It is always prudent to include disability when taking out a policy for life cover – one cannot predict what the future holds.

 

There is a large selection of life insurance to choose from in the South African market.

 

If you want life cover only for a certain period of time, for example while paying off a bond, then certain companies could offer you life cover at relatively cheap rates. This would then fall under the umbrella of bond insurance.

 

Certain policies that are cheap often do not have investment or cash value, so when the period comes to the end of the policy, then the cover merely expires.

 

When surrendering the policy or when the life policy holder dies, then certain policies expire. Your premium is invested for you by the insurance company, so as soon as your policy has cash value, the policy holder can borrow against this policy. Not the wisest choice, certainly, but at times, a necessary choice.

 

Many policies for life cover have an investment component included. Your return on investment depends on the performance of the investment. The growth rate is never guaranteed, but growth is a possibility. Policies that cover your life include: Life cover, accident cover, endowment policies, retirement annuities.

 

Life policies are legal contracts and the terms of the contract describe the limitations of the insured events. Specific exclusions are often written into the contract to limit the liability of the insurer; for example claims relating to suicide, fraud, war, riot and civil commotion.Life-based contracts tend to fall into two major categories:

 

1. Protection policies - designed to provide a benefit in the event of specified event, typically a lump sum payment. A common form of this policy is term insurance.

 

2. Investment policies - where the main objective is to grow capital by regular or single premiums. Common forms are whole life, universal life and variable life policies.