In South Africa, the life insurance industry is in total upheaval due to new legislation that has been introduced. The legislation deals specifically with credit life insurance (the life insurance you are forced to take out when you make a loan of any kind) and has no bearing on ordinary life insurance, but it still raises an interesting question: how much should you be paying for your life insurance?
This article will deal specifically with term and permanent life insurance, as credit life insurance is a total different subject.
The accepted standard is to take out a life insurance policy that covers you for 10 to 20 times your annual salary. So, if you earn R200, 000 a year, you should probably be looking at a policy that covers you for at least R2, 000, 000 in the event of your death. This is just a ballpark amount and doesn’t take into account any large debt you might have that would have to be paid by your family after your death.
R2, 000 000 sounds like a lot, but one can in fact get cheap life insurance premiums for that coverage, depending on certain factors.
Your biggest consideration should be the type of life insurance you need. Broadly speaking, personal life insurance is divided into two main categories: term life insurance and permanent life insurance. To make sure that you get cheap life insurance premiums, you need to understand the difference between the two.
Term life insurance is affordable life insurance at a set monthly premium for a specified term (usually about 20 years). This is often the cheapest life insurance option for most people, but if the term expires before your death, conditions will have to be negotiated and your premium might go up.
Permanent life insurance is mostly not considered to be cheap life insurance. It is meant to cover you for an unspecified amount of time and the premiums tend to be readjusted yearly. This options is expensive in the long run and it is highly recommended that you speak with your financial advisor before considering such a policy.
There is no single formula that will enable you to know what it is that you SHOULD be paying every month. Premiums fluctuate wildly from one person to the next. These fluctuations are mostly caused by something called risk factors.
Risk factors are things that are likely to cause your death sooner, and keep you from getting cheap life insurance. Your age plays a massive role in determining how much you will pay, but over and above that, in the developed world, the top risk factors are smoking, obesity and family history of severe health problems.
Though the temptation may be high, never lie about these risk factors. If the deception is discovered, your claim will not pay out. In the same breath, make sure that you are not adding unnecessary or exaggerated risk factors on your application.
The best way to find the cheapest life insurance cover is to use one of several quote comparison websites. These cover a broad range of companies and will enable you to make an informed choice.