Life insurance is not about the policyholder; it's about the peace of mind and financial support it provides to loved ones after the policyholder's death.

What is life insurance?

At its core, life insurance is protection that will provide money to your loved ones and dependants after you have passed away so that they are able to cover any financial obligations, such as housing costs, food, utilities, clothing, everyday expenses, and funeral costs. And let's add the cost of getting the children educated at university. It's a safety net, ensuring that your family can meet financial obligation. So, who needs it? ANYONE who is the main breadwinner for others, with dependants relying on your income, and / or with debts to pay.

Types of Policy

Key benefits of life insurance

• Income Replacement: Life insurance compensates for the lost salary of the deceased.
• Mortgage Payoff: It ensures the mortgage is covered, so the family home is secure. While this is not common in Africa, do see 'Comments' below.
• Funeral Costs: Many policies can cover funeral expenses as part of or before the lump-sum payout.
• Lost Earnings: Critical illness cover supports the family if the policyholder is unable to work due to illness. · If you have business or large personal debts, a life policy can cover these, even if the term until repayment is just a few years.
• Shareholder Insurance. Enables shareholders / partners to buy out the shares of a deceased fellow shareholder / partner so that they do not have to welcome to the Board of Directors either the spouse or representative of the deceased (who may be someone they find uncongenial, or who has no professional expertise or who may wish to sell the company or take other action they do not desire).

Mr Banda is 35 and has three boys, the eldest of whom is nine, the youngest four. The mother of the family is home-based. They rent their home. The father gets hit by a truck crossing a road and is killed. There is no insurance. After the few months’ worth of savings are used up, the family faces ruin and destitution. The extended family has no space to take them in. Imagine the anxiety and worry; widow and children.

Now we will rewind four years. Mr Banda took out a $200,000 life policy when he was 31. He does not smoke and is young – the annual premium for the 21-year policy he took out (he chose that term to coincide with his youngest turning 25) was just a few hundred USD per year, and that premium is locked in; it won’t rise.

He is killed by the truck. Mrs Banda buys a house for the family and furnishes it: never again will she have to pay rent. The balance of the money is split between the bank, government bonds and an offshore investment producing USD income. The mother starts some training so she can enter the work-force, even part-time. Years later, the last boy leaves university and gets his first job promotion. The three boys between them care for their mother from then on.

Take out level-term insurance as soon as you can afford the annual premium. The earlier you take it out, the cheaper it is, and inflation over the years will make it cheaper still.

Don’t bother with Whole Life insurance: you have to pay the premiums even into old age, and who the heck wants to do that? It’s expensive anyway.