What is life insurance and what does it cover?

Life insurance is a way of making sure that your family will be taken care of should you pass away. It is designed to pay out a huge amount of money to your loved ones, after you have passed on. It is different from a funeral plan, which is only designed to take care of the costs related to the funeral.

There are three main types of life insurance; term life insurance, universal life insurance and a whole life insurance. All these policies are attracted to different people. Life insurance is especially important if you have a family, it’s often best to take a coverage that is about 10x more than your annual salary. If you earn R100 000 a year then it’s advisable to take a cover of R1million.

Term life insurance

A term life insurance is designed to last for a certain period of time, this period is usually 10 to 30 years. You will only be covered during this period and if the period ends while you are still alive then you will not get any of your premiums back. The only way to a pay-out from this policy is if you pass away.

Term life insurance is popular amongst young adults and people who are still in their thirties. This is because term life insurance is very cheap when compared with other types of life insurance. Your premiums are fixed for the duration of the term, if you pay R200 per month, you will pay it until the term matures, without any hikes.

The disadvantage is in the renewal, you will pay a hefty premium should you choose to renew when the term comes to an end. This is because you will be older and much more of a risk. This is a good policy if you want life insurance without paying a lot in premiums.

Universal life insurance

Universal life insurance is the same as term life insurance, except that your premium amount increases every year. This is because insurance company assess “risk” each and every year, you are more likely to die the more you age. Your premium will never go down, stay away from this plan.

Whole life insurance

A whole life insurance is a permanent insurance in a nutshell, it’s meant to cover you for your entire life. This policy covers you for your entire life for as long as you pay your premium every month.

This premium never changes, it stays the same, it is more expensive than term insurance. About 5 times more expensive, however, it has some benefits that term insurance does not have.

The main benefit is that a portion of your premium goes towards investments. This is money that will generate interest, money that you can use some years down the line. That’s the “cash value” part of your policy. You only get an option to use this cash value upon maturity, which is usually defined by your insurance company.

The money is kept by your insurance company should you fail to use it while you are still alive. It doesn’t go to your family, the only bit that goes to your family is the actual life insurance cover. The investment is kept by the insurance company. Most financial advisers recommend taking this policy.

What does life insurance not cover?

There are instances when life insurance doesn’t pay out, even though the insured paid all the premiums in full. This has to with how the insured died.

  • Death due to involvement in criminal activity.
  • The policyholder dies under the influence of alcohol.
  • Death due to participating in hazardous.

The above are some instances when term life insurance doesn’t pay out, some of these come with conditions. You should disclose that you participate in hazardous activities to your insurance company. The same goes for drinking and smoking, they factor this in your premium.


This is what a life insurance is and what it covers. Do you have any thoughts or questions? Comment below.

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