Understanding Life Cover
Life Cover is also known as life insurance or life assurance, and is commonly held as one of those things 'you've just got to have'. What exactly is life cover and how does it work? Don't let complicated insurance terms obstruct your understanding: here are the basics to help get you in the know!
Life cover is an insurance policy that exists between you (the policy holder) and an insurance company (the insurer) whereby the policy holder pays a certain premium every month in exchange for the insurer's commitment to pay a certain sum of money to a stated beneficiary upon the policy holder’s death.
In other words, this means that a designated beneficiary, such as your spouse or child, gets paid a lump sum of money either all at once or in installments if you die. This gives them the financial support that they need to continue living their lives without your assistance. Life cover payouts can pay for schooling and education, rental, or even just pay for your funeral – it all depends on which type of life cover, and how much, you choose to take out.
There are many different types of life cover, such as accidental cover which will pay out a sum of money if you die in an accident that is covered by the policy – such as in public transport or during a hijack. This type of insurance is often cheaper because it only pays out on accidental deaths.
As with most types of insurance, you need to be sure to read the fine print: this kind of accidental death coverage usually does not cover suicides or death from an illness. You also get special life cover that you only pay premiums for a certain number of years, or are particularly geared towards a certain type of coverage.
When choosing life cover, always be careful and ask these questions:
1. What does this life cover include and what are the exclusions?
2. How much will this life cover pay out if I pass away?
3. How much must I pay each month?
Once you have answered these three questions then you need to look at the company that is offering you the life cover – how well known are they? Who underwrites them? Are they a reliable company that is going to be around in the next twenty or thirty years to actually pay out the lump sum to your relatives? It is a great idea to approach at least five different companies to get a broad idea of the different life insurance plans and options available to you, and then compare each plan on the three-questions grid.
Your family is your life and you don’t want to leave them financially unprepared to deal with their future if you are suddenly no longer around to take care of them: make all the provisions you need to ensure their successful and healthy futures with your life cover policy!