How does life insurance work?

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Lerato Khumalo

Life insurance protects against financial hardship after death, but not everyone has it. This is how protection works.

Life insurance is taken out to protect the surviving dependents in the event of death. But it can also be useful as a retirement provision. The sooner you take out the policy, the more assets you can build. What payment you can expect at the end of the term in the event of survival depends on various factors.

Depending on what you want to use life insurance for, there are different types to choose from:

When you take out life insurance, you agree on a term and an insured amount. Only with term life insurance is no term agreed. The sum insured, the entry age and the term are decisive for how high the monthly premiums are that you pay into the life insurance. The contract names a beneficiary who will receive benefits if the insured person dies.

If the insured reaches the end of the term, the insured sum will be paid out to them. In addition, he can receive interest that depends on the market interest rate development. With unit-linked life insurance, the insured can receive dividends and returns. However, these are not guaranteed. The amount depends on the development of the funds in which insurers invest their customers’ money.

In addition to the sum insured in the event of death and survival, you can insure additional benefits with life insurance:

If you arrange additional occupational disability insurance or take out term life insurance, a health check will be carried out beforehand. Certain health risks may result in higher monthly premiums. It is also possible to exclude individual risks from insurance cover, with the result that no BU pension is paid in the event of illness.

With endowment life insurance, you agree on the sum insured as a guaranteed benefit. Interest and generated surpluses are added to the guaranteed sum insured. In the event of your death, these interest and surpluses will be paid to you in addition to the guaranteed sum insured. In the event of the death of the insured person, the surviving dependents receive, in addition to the insured sum, the surplus shares accumulated up to that point.