Life insurance 101: What you need to know about life insurance for young families

If your children depend on you, then you need life insurance, no matter how much you earn, or if you work or not. Life insurance is one of the best ways to ensure your family’s financial security, and it’s something that can provide so much, without you having to spend a fortune each month.

In our first post on “Life insurance 101”, we explain more about life insurance for young families by answering FAQs we get from our clients.

1. Why do I need life insurance? What will happen if I don’t have it?

As long as there are people who depend on you, it’s important to make a plan for them financially in case something unforeseeable does happen to you. All parents need life insurance to make sure that their kids will be taken care of, especially when it comes to their education. Life insurance is a critical part of a family’s financial plan.

If you don’t have it, nothing will happen until something actually happens. Unfortunately, we never know what life can throw our way. The question is really whether it is worth putting your family at risk, especially when getting life insurance is not that difficult nor that expensive.

“Life insurance is a critical part of a family’s financial plan.”

2. I don’t have a lot of assets, nor do I work. Do I still need life insurance?

If you’re a stay a stay-at-home mom, life insurance is still a good idea. Those who stay at home still provide all kinds of unpaid work to keep a household running. If something happens to a stay-at-home partner, it can be expensive to hire external help for things like childcare, driving, cooking, cleaning and managing household finances. It’s wise to insure both adults in your household, regardless of whether they bring in income or what assets they have to their names.

3. If my partner has life insurance, isn’t that enough for our kids?

As in question 2, insuring both partners is still a good idea. Ultimately, we need to imagine life without our partner and consider the financial implications in a situation without their income and support. It might be worthwhile to check out whether the life insurance you already have in place is really enough, using the Hero Life calculator.

4. I’m fairly young and healthy, so why do I need insurance?

When you are young, your need for life insurance may actually be greater. That means if an accident or disease causes an unexpected death, your kids will probably still be young and will need significant financial support to finish their schooling and studies.

Luckily, life insurance is more affordable when you’re young because you’re generally healthy, so a bigger cover amount will still be affordable. You can actually lower your life insurance as you get older and as you save up, pay off the house, and the kids become less dependent on you. It’s also better to buy when you’re healthy.

As you get older, your risk of dying increases and as a result, the cost of life insurance plans available may go up. Feeling healthy? Perfect. Now is a great time to buy.

5. Do I get anything out while I’m still alive, after putting so much money in?

There are various products out there, some of which can give you a proportion of your premium back after 10 or 15 years. While this might sound like a good deal, this benefit is usually priced into your premium, so you’re actually still paying for this “bonus”.

As you get older, you’ll need less life insurance and your cash-back options can be less flexible. It may just be better to keep things simple – buy the life insurance you need and invest the rest of your money. That way you stay in control and don’t lose out if you want to change or cancel your life insurance down the line.

A different way to think about it may be that you actually don’t pay so much at all. If something happens to you in three years’ time and you paid R100 per month for R500 000 cover, you would have spent R3 600 in total for a R500 000 pay-out. Nobody wants to think the worst but putting a plan in place to ensure your family will receive a financial pay-out that you contributed towards will change their lives for the better.

FAQs by our clients

1. How do I work out what I need to pay each month, and what policy to opt for? Can I take out two policies?

Start with how much cover your family would need should anything happen to you: that’s roughly the future costs for your kids’ education, your outstanding home loan and other debt, and money needed on a month-to-month basis for your other costs. You can use the Hero Life calculator for that. The premium will be based on your cover needs.

If you can’t afford it now, it may be something to work towards to in the future and then rather take what you can afford now, as some cover is definitely better than none! Speak to an advisor to help you select the right policy if you are unsure. You can take more than one policy for life insurance, but it may not really be needed. Our suggestion would be to take something basic without frills. You often pay too much for the frills that in many cases you don’t need.

2. How do I determine a beneficiary, and if I have another child, can I change beneficiaries?

The beneficiary is simply the person that should receive the policy money and manage it for the needs that you identified. It is often your partner or you can leave it to your kids directly (in which case a trust will be created that will ensure that your kids are being looked after the way you intended). You can and should be able to change the beneficiaries without much fuss when your family scenario changes.

“Life insurance is a critical part of a family’s financial plan.”

3. How long does it usually take for a policy to be paid out?

On death, it can take between two days to two months for the policy to be paid out, depending on the insurer and the documents needed to ascertain that the life insured has passed away. To ensure the policy is paid out as soon as possible, make sure your documents (such as your will and policy documents) are stored safely and that your next of kin is aware of where these documents are stored. It will also help if you let the beneficiaries know that they have been nominated to the receive the policy money, as this can speed up the process.

4. When should I update my policy?

It is good to relook at your needs when your family set-up and therefore your needs change, like when you have a new child, or say once a year or every three years if you prefer. Your life insurance needs actually change over time and often decrease as you save up and your nest egg grows, your kids get older and as you pay off your home loan and other debt. This means that by reviewing your life insurance needs, you may actually lower the cover when you are older and save some money. Life insurance also gets more expensive as you age, so having something that is flexible and that can be reduced when necessary can save you more money than you think.

5. Can I decrease my contribution amount?

If you decrease the amount of cover that you need or want, your contribution (i.e. your premium) should come down with it.

6. How do I go about making changes to my policy?

If you have a financial advisor or broker who looks after your finances, then speak to them for assistance. Alternatively, you can also directly contact the insurance company with whom you’re insured. In some cases, insurance companies have an online profile/dashboard where you can make changes to your policy, such as changing an address or beneficiary. If you need to increase your cover above a certain limit, a traditional process might have to be followed, which could mean that you’ll have to go for medical tests.

7. Is it easy to change policies and opt for another product/insurer?

It depends. Each time you change policies, the insurer will reassess your risk and may send you for a bunch of medical tests or ask you to complete lots of paperwork. The traditional life insurance process could actually be very frustrating at times. Some providers like Hero Life make it very easy for you to get a new policy or change your cover if necessary.

If your children depend on you, then you need life insurance, no matter how much you earn, or if you work or not. Life insurance is one of the best ways to ensure your family’s financial security, and it’s something that can provide so much, without you having to spend a fortune each month.

Another consideration is your health. It is easier to qualify for cover and to pay a lower premium when you are still healthy. If you have ill health for any reason, it is more difficult to get life insurance and it will also cost you more, so rather get it when you are healthy.

We’d love to chat! You can find us at www.herolife.co.za, or you can WhatsApp us on +27 73 916 9367. Click here to chat now.

This article is to provide general information on the subjects covered. It is not, however, intended to provide specific advice or to serve as the basis for any purchasing decisions. Hero Life is underwritten by Guardrisk Life Ltd an authorised Financial Services Provider (FSP 76).
Advise is rendered by representatives mandated by MMI Group Limited trading as Metropolitan (FSP 44673).

Also read:

Single parent? Financial tips to help you
New parent? Here’s your family financial checklist

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