Life insurance policies come in many different forms, each with its own benefits and drawbacks. This is a hugely important type of insurance to consider, particularly if you have dependents or loved ones who would suffer a financial hardship in the event of your death.

The right policy can provide peace of mind knowing that your loved ones will be taken care of if something unexpected happens to you. Additionally, getting life insurance can also offer tax advantages and serve as a tool for estate planning.

To help you understand the different types of life insurance policies available in South Africa and help with this essential financial planning task, we’ve unpacked the most common types of life insurance for you to choose from.

Term Life Insurance

Starting with term life insurance. This policy is typically much cheaper than the other types and pretty much does what the name implies. It covers you for a specific term. Simply, you take out this policy for a set period of time, like 10, 20, or 30 years. If you, as the policyholder, die during your agreed term, then your beneficiaries receive a death benefit.

The main drawback is that you might outlive the term you selected. There are other considerations, though. Such as, term life insurance policies don’t generally build cash value, they have no surrender amount if you cancel, and, if you have to renew (because you’ve outlived the policy term), your premium is adjusted based on your current age and health, which can mean much higher rates.

Whole Life Insurance

On the other end of the scale, you get whole life insurance, which covers you for your entire life. So long as your premiums are paid, that is. This policy can be more expensive, but what’s good to keep in mind is that most whole life insurance policies come with a cash value component that grows over time and can be borrowed against or used to pay premiums.

In short, this is a popular option because it allows you to build cash value, receive permanent cover for your whole life, and can help build your family’s wealth over the long term.

Universal Life Insurance

Similar to whole life insurance, is universal life insurance. This policy gives you more flexibility in terms of premiums and death benefits, and pays out a lump sum when the policyholder passes away. The difference with this policy is that you gain interest on the sum of the money that is placed in an investment account. This money in the investment account could even grow to match the amount that you’re insured for – meaning that you’ll no longer have to make monthly payments.

Critical Illness Insurance

There are also very selective types of life insurance that can be used if you come to some harm during your life. Also referred to as ‘dread disease insurance,’ this type of policy covers you if you are impacted by specific illnesses, such as cancer, heart attack, or stroke. How it works is, if you, as the policyholder, are diagnosed with an illness that’s covered by your policy, you’ll receive a lump sum payment for you to pay for medical expenses or other costs.

We would argue that this is the type of policy that could be included with your life insurance policy as additional cover.

Disability Insurance

This is also a type of life insurance intended to help you during your lifetime. How it works is that if an unexpected illness or injury prevents you from working and earning a living, this policy pays out a portion of your income. The money can be used for whatever you need it for, including your monthly expenses, recovery treatments, or even renovations to make life easier to manage at home.

Key Person Insurance

Key person insurance, also sometimes called ‘key man insurance,’ is a business life insurance policy taken out by a company to help protect it against financial loss if an owner, partner, top executive, or essential employee passes away. The key person is usually a person with a large amount of ownership or a decision-making power in the business.

If the key person dies, then this policy provides a death benefit that can be used to cover business expenses or buy out the deceased person’s share of the business.

Funeral Insurance

Funeral insurance fits into this category of life insurance products, but it’s vital to understand that its main intention is to cover funeral expenses. To that end, you’ll find that funeral insurance policies typically have much lower death benefits than other types of life insurance policies.

Feeling Informed?

No one really wants to think about their own mortality, but the reality is that one day, we’ll all pass away. How we plan for what happens next can have a huge impact on those we leave behind. That’s why it’s so important to carefully consider the different types of policies and choose the one that best meets your needs.

We trust that this information will help you make an informed decision around getting the right cover for you. Don’t forget that in addition to helpful articles like this, AA Inform can also help you with free tools and resources, such as getting a Will drawn up!

Click here to get a free Will drawn up by a professional team and give your family even more assurance that they will be taken care of, no matter what happens.