Understanding insurance options can secure your financial future

Understanding concepts such as short-term, long-term and funeral insurance can go a long way in achieving financial wellbeing. The more you know, the better equipped you are to plan and manage your finances. 

Here is a breakdown of what you need to know: 

What is insurance? 

Insurance covers risk. Risk is anything that could happen that would expose you to loss — usually a financial expense of some kind. By understanding the basics of insurance, you’ll be able to choose the right insurance cover to help protect you against risk. 

An insurance policy is a contract between an insurer and an insured (you), where the insurer commits to pay you an agreed amount of money should you experience the risk that is insured. In return, you pay a premium to the insurer. 

What is a policyholder? 

The person who takes out the insurance contract with the insurer is called the policyholder. The policyholder can either be the insured person or another person, for example, a spouse or business partner. The policy benefits will always pay out to the policyholder, unless the policy is transferred to another person or entity.

Short-term vs long-term insurance

In SA, insurance falls into two categories: short-term and long-term insurance. The best way to demonstrate the difference between the two is to use your home as an example. 

To protect your home, the physical building, against damage from fire, break-ins, and natural disasters, you’d get building insurance — which is short-term insurance. 

But, to protect yourself and your family against the financial costs that come with life-changing events — such as serious illness, disability or death — you would need to take out life insurance, which is a type of long-term insurance. 

Why is funeral insurance important, and what are the benefits? 

Funeral cover is another important example of long-term insurance. 

Preparing a dignified farewell for a loved one is not easy: the last thing you want is for the emotional part of it to be compounded by a difficult financial situation. 

Some funerals are elaborate events that could, in addition to the burial or cremation service, include a memorial service that requires catering, family cars, tents, chairs and other services. These costs quickly add up if you don’t have a policy payout to help cover them.

Though funeral policies are long-term policies, they usually pay out initial benefits within 48 hours to assist the beneficiaries with the immediate financial aspects of the funeral. Quick access to funds can be useful to the family of the deceased. 

Did you know there are benefits you can add to your funeral insurance policy?

Here is an example: 

The breadwinner benefit 

Breadwinners are important in any family because they bring in the main income. 

After the death of the main insured person on a policy, the policy will become paid-up for the remaining insured people, depending on the duration of the policy. The benefit may only be applicable to a policy where the main insured person is also the policyholder and premium payer. 

Always ask your insurer to explain the relevant terms and conditions to you, so you’re comfortable that your cover is suitable for you and your family’s needs.

There is a range of savings and investment products in the market and many of these products are tailored to meet the needs of different customers. It’s never one-size-fits-all, look for the solution that works best for your needs. 

In a deeply emotional time, the last thing you want is added financial stress. It’s key to educate yourself on products such as funeral insurance, so that when that day comes, the money doesn’t get in the way of what matters most — a dignified send-off for the deceased. 

Avbob Mutual Assurance Society is a licensed life insurer and authorised FSP.

This article was paid for by Avbob.