Felix Kagura, Head of Long Term Insurance Propositions at Standard Bank, believes that life insurance options should be considered by the young.
“You are healthy and looking forward to all that life can bring. Setting an insurance base at this time ensures that you can get cover at lower rates and continuously build on your policy, altering it to meet changing lifestyle and personal needs as you go along,” he says.
“For the people you love, having a policy that covers you, should you become disabled and unable to work, or at the worst, ensures that your loved ones receive a pay out that can cover all your debts in case of your premature death, is a sign of respect and consideration,” he adds.
Deciding what kind of cover you need depends on a number of factors, Kagura notes. An early start to life insurance makes it easier to choose between both the premium pattern and duration of life cover. In the industry, life cover is generally referred to as ‘term life insurance’ or ‘whole life insurance’, terms that refer to the way they can be tailored to meet specific requirements.”
Term life policies are sometimes referred to as temporary life insurance. Term life insurance is bought for a defined period and premiums are paid on the policy for the duration of this time period. “If you pass away, or are disabled if your policy covers this, during this period then your family or beneficiaries will receive a stipulated payment,” he states.
The premium (monthly/annual payment) for this cover will be assessed on your age, general state of health and habits (non-smoker, smoker etc).
“The advantage of this sort of insurance – especially when you are young – is that it allows you to tailor your coverage. For instance, you may buy a property and are committed to paying it off in 10 years. The term insurance will allow you to pay a premium and get covered for the 10 years.
“If something happens to you, you have the comfort of knowing that the amount you insured your life for will be paid out to the people you have named who can then settle the outstanding balance on the property and take possession of it. This type of policy enables you to choose a term that coincides with the years you or your family would be most financially vulnerable”, he adds.
Term life is a good choice if:
- You need life insurance only to cover a certain period, such as the years you’re raising children or paying off your mortgage.
- You want the most affordable coverage.
- You think you might want permanent life insurance, but can’t afford it. Some term life policies are convertible to permanent cover. The deadline for conversion varies by policy.
Whole life insurance, or permanent insurance, normally refers to cover that doesn’t cease with age. Premiums might, however, be higher (depending on premium pattern) or maybe payable for a longer duration, because the policy stays in force until death occurs.
Whole life is worth considering if you need coverage for the rest of your life, for example:
- You want to provide money for your dependants.
- You have a lifelong dependent, such as a child with special needs. Life insurance can fund a special need trust to provide care for your child after you’re gone.
- You want to spend your retirement savings and still leave a legacy or money for expenses for your beneficiaries to ensure continuity.
- You want to equalize inheritances. If you plan to leave a business or other property to one child, you could use whole life insurance to compensate your other children.
“With whole life insurance, the amount of the payment can be set to suit the insured person and is a guaranteed payment. The earlier you take out a whole life insurance policy, the lower the premium will be,” Kagura says.
It pays to shop around before buying any type of life insurance, he adds. “Ultimately, the decision on whether to take out a whole life or term life policy rests with the person concerned and their individual requirements. What should not be debated is whether to have insurance cover at all,” he adds.