By just being alive, we tend to be exposed to diverse risks. From slipping in the shower to sudden unforeseen ailments, not to mention however careful a driver is, the risks that come with just being behind the steering wheel. One cannot be careful enough as there are many factors beyond our human control.
It is therefore essential to put in place a plan that would give financial compensation to you or one’s dependents should any eventuality occur. Life insurance is one such product to consider adding to one’s risk mitigation strategies as it guarantees payment of an agreed amount of money (sum assured) in the event of the demise of the life assured. This will not fill the gap, but it will ensure that the dependents’ lifestyles do not change negatively thereafter.
You may look at this as a form of estate planning. If you have investments that are difficult to divide, a life insurance payout can help equally split your assets among multiple heirs.
Imagine standing at the crossroads of these two paths, each promising to shield your loved ones from the storm. But which route leads to the ultimate peace of mind?
Term life insurance is a type of policy where payment of the sum assured is only made if the life assured dies within the time specified in the policy. If death does not occur, no payment is made. It is also ideal to note that the assured does not receive a refund of the premium if they survive the policy term. Depending on the type of term life policy purchased, one can renew or convert it to a whole life or an endowment policy.
Premiums paid towards purchasing a term life insurance policy goes to solely provide for a life cover, without any cash value accumulation. This makes it a more affordable life insurance product.
Before settling for a term life insurance policy, one should consider the possibility of their family’s needs for life insurance changing before the term expires.
Whole life insurance, as the name suggests, lasts for the whole of the life assured’s lifespan. It pays out the assured amount whenever the life assured dies if premiums are paid. It is a permanent policy. Premiums can be paid for the whole of life, up to a certain term, or cease on the attainment of a certain age, usually 65 but the cover remains in force until death.
If one needs coverage for a longer period or wants to ensure financial protection for their loved ones over several decades, this would be the most pertinent product.
An example is a 30-year-old who takes a 10-year plan for a Sh20 million assured. The premium payment ceases at attaining age 40 but the person is covered for the rest of their lives. The amount is payable should death occur before 40 or anytime thereafter, even if they survived up to 100 years.
The covers can be purchased jointly by two individuals with joint assets. Could be a married couple or business partners. Two options are available; First death coverage that is meant to support the surviving policy owner, such as helping them replace income or pay off mortgages. The policy lapses after payment of the death benefit and the survivor would need to purchase a new policy to continue being on cover.
The other option is a second death coverage that pays out after the death of the second life assured. It is more of a survivorship insurance and can help with estate planning. It can also be a way of leaving a nest egg for heirs to claim once both partners have passed away.
It is also important to note that whole life insurance builds a cash value over time in addition to the death benefit.
The amount of life cover depends on several factors and is not limited to;
The life assured’s age: Younger individuals generally have a longer life expectancy, hence they may qualify for higher coverage amounts at lower premiums. They are considered to have lower health risks than older individuals.
Health status: Individuals in good health tend to qualify for higher sum assured and at lower premiums. It is important to note that insurance companies may not reject persons with health issues or pre-existing medical conditions. Conversely, their coverage may be capped at a certain level, or the premiums loaded to compensate for the increased risk of premature death.
Term: The term chosen determines how long the cover will last. Typically, longer terms offer a higher coverage amount as they provide coverage for a more extended period. Choosing the right term length involves considering factors such as one’s financial obligations, dependent’s needs, and future financial goals.
It is important to note that it entirely depends on one’s life situation and goals as to which policy they choose. The product you opt for should align with your financial situation and provide adequate protection for your beneficiaries during the specified period. Remember to always reach out to a qualified financial expert should you feel the need to consult one.
