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A Guide To Insurance in South Africa

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June 19, 2021

Insurance Policies in South Africa

As we navigate through life daily, its uncertainty hits us in different ways. We have heard of many stories of people dying while doing normal stuff, leaving family, and loved ones in peril. People who seem very healthy without any sign of falling ill. People going to sleep and not waking up. When you go out, the dangers increase, but you have no choice. As long as you are alive, you have to live.

However, do you know that there is something you can do to ensure that when the uncertainty happens, your loved ones are well off? What can that be? Well, the answer is no news to you or anyone. It’s called life insurance. Now what is life insurance and how can you and your loved ones benefit from it? If you don’t know, here is a complete guide to life insurance in South Africa.

What Is Life Insurance?

In simple terms, life insurance is a legal contract between a company (usually the provider of the insurance or the insurer) and the policyholder or insured (that’s you). When you opt for an insurance policy, you are required to pay a certain sum of money at an agreed recurring time during your lifetime. And in exchange, the insurer will pay a certain sum to your designated beneficiaries when you die.

There are two types of life insurance: term life insurance and permanent life insurance.

Term life insurance policy is a type of policy that only last during the term of the insurance. This term is usually between one and thirty years and that’s it. No other benefits attached.

Permanent life insurance covers you for as long as you live. Even if it is for 100 years! As long as you pay your premiums, the death benefits are paid to your beneficiary.

Some things to note about life insurance policy

A life insurance policy is a legally binding contract.
For your life insurance to remain void, you as the holder must pay your premiums when due.
For the contract to be enforceable, you have to disclose to your insurer any past or present health conditions. Or if you are involved in any high-risk activities, you have to let your insurer know.
Your beneficiaries will get the benefits or the policy’s face value when you die.

How Life Insurance Works

First, you need to choose a life insurance policy that fits your needs. For instance, if you are a married person with kids, you will want to go for insurance that promises a higher coverage. That way, you are sure that your kids will live a smooth life without any hassle after you are no longer there. Although you may have to pay a higher premium, which is worth it if you look at the benefit to your loved ones.

Things to note

Death benefit: also known as the face value is the total amount of money the insurer guarantees that your beneficiaries will get when you die.
Premium: this is the money that you as the insurance policyholder pays to the insurance companies. This ensures that the insurer pays the death benefit when you die.
Cash value: this serves as a savings account that you can use during your lifetime and also used by you to pay the premium or purchase more insurance.

Who Should Buy Life Insurance?

As great as life insurance sounds, it’s not suitable for everyone, especially when you are single and still young. However, if you are a person who has several people depending on your income then you surely need one. Dependents such as spouses, children, parents and even siblings are such people. Below are examples of people who truly need to get life insurance.

Parents with younger or minor children
Parents with special needs children or adult
Married people
Families who plan to use it for burial and funeral rites
Key employees of a business for example CEO

Qualifying for Life Insurance

Before you get insured, the insurance company will thoroughly evaluate you to ensure you both get the best out of the contract. However, with hundreds of insurance companies in South Africa, you are surely going to find a company that fits your needs. Plus, these insurance companies sell different types of policies that meet several needs. You have nothing to worry about when it comes to qualifying for life insurance.

Once you have your policy type, insurance company and amount, you are ready to apply for life insurance. Below are some of the important information the insurance company will need from you.

Your family’s medical history: the insurance company will want to know this information to determine if there is any disease in your family history that may affect you.
Your medical history: the insurance company will want to know what medical conditions you have had in the past or currently have. The list is very long so be prepared to give a comprehensive answer.
Plans for risky activities in the future: some risky activities can increase your premium or even get your application denied.
Your lifestyle history: this is to know whether you have any criminal conviction in the past be it minor such as a suspended drivers’ license or major.

Other non-medical questions usually asked are who your beneficiaries will be, payment frequency and if you have other insurance policies. After the application, you will be contacted for some medical examinations, then you wait for the insurer to verify your information. Once that is done, you will know whether you qualify for the insurance or not.

Remember, be truthful with all your answers, because when the insurer finds out that you lied, it can lead to disqualification. Not only that, your beneficiaries might be denied their claims after your death too.

Comprehensive Life Insurance

A comprehensive life insurance policy is a plan whose benefits cover a wide array of services. It also provides you with protection through critical illness.

Types of Comprehensive Life Insurance

As mentioned earlier, there are two types of life insurance. The term and the permanent life insurance. The term life insurance is categorised majorly into two. The level term and the increasing term. In the level term, the premium remains the same all through the duration while in the increasing term, the premium increases as you get older.

Permanent life insurance is divided into several categories depending on what you need from the insurance policy. They are

Whole life insurance is a type whose face value accumulates over time.
Universal life insurance is a type whose cash value component earns interest and the death benefit can also be adjusted.
Guaranteed universal has a lower premium but does not build face value.
Variable life insurance is a type of insurance that allows you to invest the cash value of the insurance policy.
Indexed Universal is a type of insurance that allows the policyholder to earn an equity-indexed or fixed-indexed rate of return on the cash value.
Burial or final expenses insurance have a smaller death benefit and irrespective of the name, your beneficiaries can use the money however they want.
Guaranteed issue is a type of insurance available to people with medical problems that would have hindered them from getting insurance. This insurance policy however doesn’t pay any benefit in the first two years of the insurance.

Dreaded Diseases Cover

Also referred to as severe or critical illness cover, the dreaded disease cover is an insurance policy offered by long term insurance companies. It provides you with financial protection if you get diagnosed with a critical illness be it terminal or not. It comes in the form of a huge sum tax-free payment on the diagnosis of the illnesses you listed. However, the diagnosis must be done by registered medical personnel.

Generally, most insurance companies offer dreaded disease cover for coronary graft surgery, cancer, stroke, and heart attacks. Other diseases covered include kidney failure, loss of sight and rheumatoid arthritis. However, some insurance companies cover more dreaded diseases; so, ensure you do your research before buying a plan.

The purpose of a dreaded disease cover is to get urgent financial relief as soon as you are diagnosed with a severe illness. Once the insurer has paid your claim, you are free to use the money however you want. You can even use it to settle a debt or something not even related to your medical needs.

Types of Dreaded Disease Cover

There are two types of dreaded disease insurance policy cover, and they are

Stand-alone benefits
Accelerated benefits

The accelerated benefit usually has a huge impact on your life insurance claim. For example, if your life insurance is for R1 million and you claim about R300,000 for your dreaded disease, your overall life insurance will reduce by that same amount. That means, you now have R700,000 left. However, for stand-alone benefits, your claim doesn’t affect your overall life insurance policy.

Dreaded disease cover is very expensive so you must give it a lot of thought before you proceed.

The Cost of Life Insurance in South Africa

You already know that with life insurance in place, your family and loved ones who depend on you will be well-off when you die. How much will it cost you to insure your life? Below are some of the factors that determine your monthly premium and how much it will cost depending on your age.

How are life insurance premiums calculated?

The calculation is specific to every individual. After your application, the insurer will assess your risk factors using all the information you provide to calculate how much premium you need to pay for the sum insured. If there is a risk that you might die sooner than expected, the premium becomes higher.

Things That Affects Life Insurance Premiums

Sum assured: this is the total amount of life insurance cover you took. The higher the life cover is the higher the premium you have to pay. As such the premium for R1 million will be higher than that of R500,000

Gender: it has been established that women tend to live longer than men, and as such, the premium for women is lower than that of men. In South Africa, the average life expectancy is 63.6 with women going to live up to 70 while men live just over 60.

Age: the younger your age the lower the premium.

Occupation: if your occupation is that of higher risk, then your insurance premium will be affected.

Other factors such as general health, whether you smoke, and education also affect the amount you will pay in premium.

How Much Life Insurance Is Enough for You

Determining how much life insurance is enough for you is an important factor you need to know. Largely, calculating how much life insurance you need depends on how much your dependents will need. Below are some of the most important things to consider for choosing the minimum amount for your life insurance.

Do you have any debt: your life insurance claims can be used to pay off outstanding debts from mortgages, student loans to even car loans. If you have such debt, then your life insurance should include enough coverage to pay them off.
Replace your income: this is one of the major factors why people purchase an insurance policy. So, if you are the sole provider, you need insurance that is large enough to replace your income.

The above and things like if you have other people to ensure all add to determine how much insurance is enough for you.

Add-ons to Life Insurance Policies

Add-ons are additional benefits that you can purchase in addition to your life insurance policy. Purchasing an add-on means paying an extra premium, although it is low. Below are some common add-ons.

Guaranteed Insurability allows you to buy more insurance without the need for more medical check-up.
Accidental death pays more benefit in case of sudden death that results from an accident.
Waiver of premium allows future premiums to be waived if you become disabled or lose your income.
Family income benefit ensures that your loved ones get a steady stream of income after your death.

Other add-ons include an accelerated death benefit, child term and long-term care. Most insurance companies won’t allow you to modify your insurance, but add-ons allow you to customize your coverage.

In conclusion

Life insurance to some extent gives you the peace of mind that everything will be fine even when you are no longer around. With this comprehensive guide to life insurance, we hope you can make an informed decision about what’s best for you.