Useful? What you should know


Lerato Khumalo

If the main breadwinner dies unexpectedly, this can have bitter consequences for those left behind. Term life insurance protects you against this.

The most important things at a glance

When a family member dies unexpectedly early, that is a tragedy in itself. But it is even more dramatic when the surviving relatives were financially dependent on him or her.

Then they may no longer be able to service loans or secure a living. You can prevent this scenario by taking out term life insurance.

We explain who it is suitable for, what you should consider in terms of duration and amount, and what questions you should be prepared for before signing.

Term life insurance is suitable for anyone who cares for others and wants to provide financial security for their surviving dependents after their death. This applies primarily to families and single parents, but not only to them.

Term life insurance can also be useful for childless couples. This is especially true for unmarried couples, as they are not entitled to a widow’s or widower’s pension. Business partners can also insure each other with such a policy.

You should especially think about term life insurance if you have to pay off a mortgage that your partner would no longer be able to manage without you, if your family could no longer make ends meet with just one income, or if you are a single parent. Term life insurance is generally not necessary for single people.

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With term life insurance, your survivors will receive a fixed amount after your death, known as the death benefit. This can compensate for the loss of your income.

There are different types of term life insurance, each of which makes different sense depending on the family situation. The following contracts are possible:

  • Individual contracts
  • Cross-contracts
  • Joint contract (“Linked Life”)

Individual contracts are suitable for married couples with a child or children. Each partner names the other as the beneficiary. Depending on who dies first, either one or the other partner receives the death benefit. The surviving partner can then name the children as beneficiaries in their contract.

Separate contracts also make it possible to agree on different insurance sums. This is useful if one partner earns less and therefore needs more money to cover the other’s death. You can also set different terms or appoint a new beneficiary in the event of a separation.

Cross-contracts are the right choice for unmarried couples. This way you avoid the inheritance tax that you would probably have had to pay if you had signed individual contracts. Unlike married people, unmarried people only have a small tax-free allowance: you have to pay tax on any inheritance above 20,000 euros, whereas married people can inherit up to 500,000 euros tax-free. Read more here about who can inherit how much money tax-free.

With cross-contracts, everyone takes out their own contract, but you do not appoint your partner as a reference person, but as the insured person. This means that everyone gets the money from their own insurance when their partner dies. This means that no inheritance tax is payable, because the contract was already your property. Cross-contracts can also be taken out with different providers.

If you separate, each ex-partner transfers their contract to the other. Then both can decide who will be the beneficiary. The cross-contracts therefore become two normal term life insurance policies. However, this requires the consent of both partners.

A cross-contract can also make sense for married couples, especially if you agree on such a high sum insured that even the exemption amount of 500,000 euros is no longer sufficient to avoid having to pay inheritance tax.

The third option, a joint contract, often called “joint life,” is only suitable for couples without children. In the event of death, the insurer only pays the agreed sum to the surviving partner once. Children would then not be able to receive money again if the second parent also dies.

Another disadvantage: In the event of a separation, it is not possible to split the joint contract into two separate contracts. The only option then is termination. And that only if both partners agree.

However, the combined term life insurance has the advantage that it can be cheaper than two separate contracts. In addition, the sum insured is not considered an inheritance, so no inheritance tax is payable.