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What is life cover?
Key takeaways
- Life cover is a policy that in return for a monthly or annual premium pays a benefit when you die. The benefit is typically a sum of money but it could also be an ongoing monthly payment.
- You can insure your own life, or that of a spouse. You can also insure the life of someone in whom you have an interest, such as a business partner or key employee.
- The benefit can be paid directly to someone, such as a family member, if you name them as a beneficiary. Alternatively, the benefit will be paid into your estate and, after your estate’s debts are paid, distributed to your heirs.
Life cover is also called life insurance or life assurance. Sometimes it is even called death cover.
In return for a monthly or annual premium, the policy pays a benefit – typically a sum of money - when you die. If you take out life cover on your own life, the benefit can be paid to your deceased estate or to any one you name in the policy, such as your spouse, children or other family members.
If someone who has an interest in your life – such as a business partner or your employer if you are a key employee – takes out cover on your life, the benefit will be paid to him or her.
In some cases, a life insurance policy benefit may pay an ongoing income to your family.
If the benefit is paid into your deceased estate, it can, after the estate’s debts are paid, be paid to your heirs in line with your will if you have one. If you die without a will, what is left in your estate, will be paid out in line with the law of intestate succession. See Why should you appoint beneficiaries on a life policy and Who will inherit if I die without a will?
Cover amount determines benefit
The benefit a life policy pays out depends on how much cover you take out, which in turn depends on what you can afford and how much your life cover costs.
Some life policies include a benefit that accelerates the benefit if you contract a terminal illness. This means that if you are terminally ill and generally expected to die within 12 months, the policy benefit can be paid out early.
The percentage of the sum for which you are insured that will be paid out in this case differs from company to company and could be, for example, 85% of the amount or the full amount.
