Life insurance explained for South Africans

Work out the cover amount before you shop

A workable South African rule of thumb: settle every debt, then replace income for the years your dependants still need it.

• Outstanding bond and vehicle finance, in full.
• Credit cards, store accounts and personal loans.
• Annual household running costs multiplied by the years until your youngest is financially independent.
• Education costs — private schooling and a three-year degree run well over R1m in current terms.
• Estate duty, executor fees and immediate funeral expenses.

Term, whole life and credit life

Term cover runs for a set period and pays only if you die inside it — the cheapest rand-for-rand protection and the right default for young families. Whole life pays whenever you die and is used for estate liquidity and legacy planning. Credit life is compulsory-adjacent cover attached to a specific debt; it pays the lender, not your family, and you are legally allowed to substitute your own policy of equal cover.

How underwriting works

Insurers price on age, smoker status, income, occupation and medical history. Expect telephonic health questions, and for larger cover amounts a paramedical test covering blood pressure, cholesterol, HIV and cotinine. Disclose everything: non-disclosure is the leading reason South African death claims are repudiated, and premiums for a declared, controlled condition are almost always cheaper than a rejected claim.

Age is the one variable that only moves in one direction. Every year you delay locks in a higher rate for the life of the policy.

Beneficiaries, tax and the estate

Name a beneficiary on the policy itself. Proceeds then pay directly and quickly, bypassing executor delays. Payouts are not subject to income tax in the hands of a beneficiary, but policies payable to your estate attract estate duty and executor fees. Review nominations after every marriage, divorce or birth.

Compare on more than premium

Check whether the premium is level or age-rated (age-rated starts cheaper and escalates steeply after 50), whether disability and dread-disease riders are accelerated or additional, and what the average claims-payout ratio and turnaround time is for that insurer.

Frequently asked questions

How much life cover do I need in South Africa?

A common benchmark is 10 to 15 times annual income, adjusted for debt and dependants. Someone earning R400 000 a year with a bond and two children typically needs between R4m and R6m.

Is a life insurance payout taxed?

A payout to a nominated beneficiary is not taxed as income. If the policy pays into your estate it may attract estate duty at 20% above the R3.5m abatement, plus executor fees.

Can I replace the credit life on my bond?

Yes. South African credit providers must accept a substitute policy with equivalent cover, and doing so is often significantly cheaper than the lender's own product.

Does life cover pay for suicide?

Most South African policies exclude suicide during the first 24 months and pay normally after that period.