What is Insurance and why do I need it?

Very simply insurance is a type of financial product, where you pay a fee (called a premium), to an insurance company, and in return for that fee, the insurance company will pay you a cash benefit if ‘something’ happens. That ‘something’ can vary a lot depending on what type of insurance it is, but its normally something bad, that causes financial problems for you or your family (maybe in addition to other problems). Life is risky, and awful things can happen to anyone. Taking out insurance can protect you or your family against financial hardship if you’re one of the unlucky ones, whether this is the loss or damage of your stuff, or something more serious, like illness or death.

The value of what you get back when you claim, is much more than the value of the premium you pay, but, if you don’t ever need to claim, then you get nothing back. So while insurance might seem like a grudge purchase, and a waste of money if you find you’re not claiming, it’s value becomes obvious if you are unlucky enough to need it.

You can insure things like your car, your house, or your personal belongings – if they are lost, stolen or damaged, you’ll get a payout so that you can repair or replace them. This is normally called short term insurance.

Other insurance covers something happening to you, or your family rather than to your stuff – so if you become ill or hurt, your insurance can pay a benefit that can cover the costs of getting back on your feet. Or even worse, if you die, your family can receive a benefit that can help to pay for your funeral and help them to get over the financial difficulties that will arise if you are not around to provide for them anymore. This type of insurance is normally called long term insurance or sometimes life insurance (even if it’s not always only your life that is being covered).

Insurance products can also be used to save or invest. Some insurance products have very little risk protection in them, and work like other investment products. Others pay more limited guaranteed cash benefits if you keep paying your premiums and you don’t claim. These cash back products will be more expensive than those without a cash benefit, and you’ll have to keep paying your premiums for quite a long time to get anything out, but on the plus side, you won’t feel like you’re getting nothing back for all the money you’ve paid.

Life Insurance

Do you need Life Insurance?

As uncomfortable as it is, the best way to decide if you need life insurance (and perhaps how much you need), is to think about what would happen if you were to be hit by a bus tomorrow:

  • Who would pay for your funeral?
  • Do you have debts that your loved ones would be left with if you died?
  • How would your family survive without your income coming in every month? Would they have money for rent, for food, transport, or school fees?

Based on how you feel about questions such as these, you can prioritise the importance of getting life insurance.

How are the premiums for life insurance calculated?

A number of factors determine the premium you will be charged for your life cover. These include the amount you want to be insured for, your age and gender, and your general health and wellbeing. If your health is poor, you may not qualify for insurance at all, or your premium may be much higher.

For example, if you are 55 years old and a heavy smoker and want to insure your life for R1 million, your premium will higher than if you are 30 years old and fit and healthy.

Thandi is 28, and is earning R25,000 per month. She doesn’t smoke, and is very healthy. She might pay R200 for a R1m of life cover. On the other hand, Jeff is 50, earns R15,000 a month, and is a smoker. He would pay R600 for the same amount of cover.

What should my Life Insurance payout be used for?

Your Life Insurance will be used to pay for your funeral and look after your family if you die. Remember that your dependents will be receiving a (potentially large) lump sum, but this money might have to last them a very long time. Make sure they have a plan around what to do with this money, so that it can really help them the way that you would like it to.

The money can be used for the following expenses:

  • All final and funeral expenses (if not covered by the funeral policy)
  • To cover all children’s expenses
  • To cover a spouse’s income
  • To settle a bond or other debts
  • To pay off debts

Life Insurance versus Funeral Plans

You may wonder if you need Life Insurance if you already have a Funeral Plan. While it’s important to think about your funeral, it’s more important to think about what happens after your funeral – i.e. how your family will survive without you.

Some Life Insurance policies provide funeral cover. But sometimes you may not receive the money in time to pay for the funeral. For this reason, some people take out a Funeral Policy and a Life Insurance Policy.

About Disability Insurance

Disability Insurance covers a lot of different kinds of products:

  • Some disability insurance pays an income to replace your salary as long as you are unable to work (up until the maximum term specified).
  • Other products pay a lump sum to you if you become permanently disabled (i.e. there is no chance of a recovery).

Different products also define disability in different ways:

Occupational disability products pay out if you are unable to work in your own or a similar job because of an accident or illness. The illness can be physical (like losing a limb), or psychological (like severe anxiety disorder).

Physical Impairment products pays out on pre-defined injuries, regardless of whether this actually impacts on your ability to work. For example, if you become paralysed, or blinded, the cover will pay out. You don’t need to be employed to be eligible for cover.

Why you need it

If you have disability insurance, you and the people who depend on your income will be financially taken care of should something happen to you.

How are my premiums calculated?

Your monthly premiums will depend on how much you want to be insured for, your age and gender and your general health.

How is Disability Insurance paid out?

Disability insurance generally pays out a lump sum and/or monthly payments to the beneficiaries. If you get a lump sum, remember to only spend on what you need and invest the surplus wisely so your family is financially secure for as long as possible.

Critical Illness (Dread Disease)

Critical Illness insurance pays out a lump sum benefit if you are diagnosed with a major illness, for example if you have a heart attack, or are diagnosed with cancer. The benefit can be used to help pay for treating the illness, or to replace your income if you can’t work while you are ill.


not all illnesses are covered, and some products cover more than others – but they will generally all cover the most common ones

even where the product covers an illness, the insurer will consider how serious your health event has been – so as an example you might not get any benefit if you only have a mild form of skin cancer, or if you only have a very minor heart attack. As with the list of illnesses covered, different products can have very different rules

These products are complex, and the cheapest is often not the best, and it might make sense to speak to an expert about what product is right for you.

Some life cover products also offer what is called a Terminal Illness benefit. If you have this benefit, you will be able to request that some or all of your death benefit is paid to you immediately if you are diagnosed with a terminal illness (meaning an illness that you are not expected to recover from, and which is likely to lead to you dying within a year). Remember this does not mean the benefit is paid twice, you are getting the benefit that would have been paid on your death in advance (this is often called an accelerator benefit).

Medical Aid

Medical Aid is also a type of insurance, although it might not always be referred to that way. Medical Aid products are intended to help you pay for the costs of treatment if you are sick or injured and need to see a doctor or go to hospital.

The most basic medical aid products will only pay if you are hospitalized, so they only cover major medical expenses.

Other more comprehensive products will cover treatment outside of hospitals, and may also provide limited contributions towards every day costs like going to the dentist, or getting glasses. The more comprehensive the coverage is, the more expensive the product will be. You might well be better off putting aside some money into an emergency savings plan to help fund the cost of basic medical issues, than getting the more comprehensive packages.

Note that Medical Aids do not guarantee to completely cover the costs of hospitalization or other medical treatment. Some doctors and hospitals charge fees which are higher than your medical aid is welling to cover, in which case you might be liable for any shortfall.

You should ideally seek advice from an expert in determining whether medical aid is a product you need, and can afford, and also, which kind of product is best for you.

When taking out an insurance policy, remember the following:

  • You have to be completely honest and disclose all relevant information. If you don’t, there is a chance that the insurance company won’t pay the benefit.
  • Ensure your beneficiaries are up to date. If your circumstances change, your beneficiaries might change.
  • You have to pay all your premiums. If your policy lapses, it will not pay out.

Do you need life insurance? If you’d like a quote from Simply, get a quick quote on www.simply.co.za or fill out your details below and we’ll get back to you.

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