What exactly is life insurance? | lifeinsurancesa.co.za

What exactly is life insurance?

Life insurance is basically an agreement that you enter into with an insurer. You agree to pay monthly premiums and the insurer will, in turn, pay out the agreed sum of money to your nominated beneficiary on your death. Generally speaking, you choose the level of cover that you would like ? i.e.: the amount you want paid out on your death ? and you then apply for a life insurance policy.

The insurance company will then take your answers to the questions on the application and determine the actual risk of you dying. They are taking the risk that you will end up paying enough in premiums to allow them to recoup the amount of money that your beneficiaries will be paid out once you die. They will look at a number of factors such as what your state of health is and will determine the premium from there.

The insurance company makes its money by taking in a number of different people?s premiums and investing this money. Basically the number of premiums coming in should always exceed the amount of money being paid out and, if it does, the company is considered successful. If it does not, the company will fold. It is because of this that the companies spend a lot of time researching mortality and developing formulae to predict life expectancy.

On the client?s side the advantage is that they will have money paid out to their beneficiaries in the event of their death. This gives them peace of mind and ensures that their beneficiaries can be more comfortable even if they are not there. It is especially important to have life insurance if you are the sole breadwinner but everyone who makes some contribution to the household should look into it. Take for example the housewife who takes cares of the kiddies and does the housework, etc. Should something happen to this person, the surviving spouse will need to look into daycare for the kiddies and also someone to clean the house. This all costs money so, although the housewife?s contribution is not financial in nature, it still has value.

Life insurance is an essential tool that is necessary to protect your family?s financial future. You need to consider the absolute impact on your family if you die. You will no doubt leave debt to repay and, even if you don?t, caring for a family can be difficult on one salary as opposed to two. Should you have debt, you may find that your family?s life is disrupted because of your sudden demise ? imagine the pain your family will feel if they have to move out of their family home because they can no longer afford to live there after your death.

In a nutshell, a life insurance policy is simply a contract between you and the insurer that states that they will pay out a sum of money on your death to your nominated beneficiary. The contract will remain in place as long as you keep your premiums up to date and as long as the insurer is in business.

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Source: http://lifeinsurancesa.co.za/what-is.php

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