But how exactly does life insurance work? What does it do, what are the ‘catches’ and most importantly, it is worthwhile?
Here’s MiWayLife’s guide to life insurance 101, covering everything you need to know about how life insurance works.
When you take out a life insurance policy, you are essentially preparing for the fact that you will pass away at some point. You are buying financial protection for those that are left behind so that they don’t have to make up for the income that they have lost after your passing. In return for this peace of mind, you will pay a monthly fee (called a ‘premium’) to the company providing your life cover.
The person who takes out the life cover is called the ‘policyholder’ because they have a policy with the life insurance company. The policyholder can choose how much money they want to insure themselves for – this is called a ‘cover amount.’ This can be as little or as large as you’d like, but the amount that you need to insure yourself for will depend entirely on your income, debt, and lifestyle.
Your premiums are affected by the amount of money you choose to cover yourself for, as well as your ‘risk factors’ – age, medical history, weight, smoking status, job and so on. If you’re a fireman and a smoker, for instance, your premiums might be higher than an office worker who doesn’t smoke.
How does the life insurance payout work?
Once the policyholder has passed away, MiWayLife pays out an immediate lump sum to cover the funeral expenses. After that, the claim is assessed and once it has been approved (this is usually a very fast process if all documents are in order and the claim is legitimate) the remainder of the cover amount is paid out in a lump sum.
The beneficiaries who were named on the policy will receive the payout. It is possible to name more than one beneficiary and specify the percentage that each one will receive.
What can life insurance cover?
The life cover can be used for whatever needs may arise, but common uses for life insurance include:
- The remaining bond on the family home
- Outstanding payments on cars or credit cars
- School or university fees for siblings, children, nieces and nephews etc
- Investment for the future
- Income replacement to maintain your lifestyle