Understanding life insurance vs life assurance
Here is what you need to understand about life insurance and life assurance.
Forbes describes insurance as 'a legal contract between the insured (individual or company who take the policy) and the insurer (company which provides insurance), where the latter pays the specific amount of money to the former, in case any unfortunate event or crisis arises such as sudden demise, accidental injuries, damage to vehicle or house, etc.'
There are two major types of life insurance—term and whole life, this is according to Insurance Information Institute.
It further states that "whole life is sometimes called permanent life insurance, and it encompasses several subcategories, including traditional whole life, universal life, variable life and variable universal life. Term Insurance is the simplest form of life insurance. It pays only if death occurs during the term of the policy, which is usually from one to 30 years. Most term policies have no other benefit provisions."
READ: Five smart tips for cash-strapped South Africans
What's the difference between life insurance and life assurance?
Legal and General explains that life assurance is a ‘whole of life’ policy and the cover is indefinite, with no fixed expiry date. A life insurance policy term means that you are covered for a certain amount of time.
Wayne Paries, a Certified Financial Planner at SWI Financial Consultants, explains the most common mistakes people make when taking out insurance:
I think it’s when Insurance is taken on a “random basis” and without the necessary groundwork done. In other words, clients did not take the take to establish their “need” for insurance, the kind of insurance required and what level of cover is cover. The taking out of insurance is only a means to an end, it is meaningless if not taken out to meet a need identified in the clients bespoke financial plan. Another mistake is when clients take out insurance for the “add-on” benefits and not to address the need for which the insurance is intended. Further to the above, clients need to seek advice from a Certified Financial Planner and regular review the appropriateness of the insurance.
He further explained that people need to ask before deciding if the insurance will be good for them:
The most important questions to ask would be “Does the insurance I am taking form part of my overall Financial Plan?”, “Does the insurance provide a solution for the need/shortfall that I am trying to address?”, “How does the future cover and future premiums over a period of time”? “Will I be able to afford the change in premium over time?” “Are there any lock-in charges or additional charges associated with the insurance?”
Who should have insurance?
"Insurance is needs based, so there is no defined age to start having policies. The start point is having a Financial Plan, as the sooner the Financial Plan is put in place the better it would be," says Wayne.
READ: Expert advice: Common mistakes to avoid when taking out insurance
Image courtesy of iStock/ @megaflopp
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