difference risk savings

The difference between risk and savings products

Posted  November 18, 2015

There are many different insurance and savings products on the market and many people are confused as to what the differences are between the two, and exactly what they have bought. As a result, one of the questions most frequently asked by our policyholders is will they get their premiums back if they, for instance, cancel their life or funeral policy.

The simply answer is no, you will not get anything back if you cancel the policy – but this begs the question of exactly what DO you get.

Some simple definitionsA ‘risk cover policy’ is one that covers you only for the risk of the occurrence of the event being insured. One of the most common types is a life policy against your death, but certain policies will also cover you for injury or serious illness. Therefore, you do not get any money back – except in the event of your death, injury or illness. What you have bought with your premium is peace of mind for your family in the event of anything happening to you. You have a ‘right’ to that payout rather than already owning it.

With a ‘savings product’, depending on the rules of the product, your premium remains your own property at all times. Methods of saving include a deposit account, a pension, an investment fund, or cash. Government earlier this year introduced a new ‘Tax Free Savings Account’ to encourage ordinary people to save, with certain tax benefits.

However, while you do get your money back on all these products, what you do not get is comfort that in the event of your death or disability your family is protected. Therefore, the two sets of products serve quite different purposes.

The practical difference is that if you take out a R250 000 life insurance policy and you die, even if you had only paid premiums of, say R10 000, your family would be paid out the full R250 000. Had you saved that same R10 000 in a savings account, your family would only get back that R10 000 plus some interest, let’s say R12 000 in total.

Any financial adviser will tell you that you ought to have both a life insurance policy for those unforeseen events such as death, and that you should be saving some of your income for those foreseeable events such as school fees.

The promise of life cover Taking out a life policy usually suggests a concern for the welfare of your family should anything happen to you. It will give you that peace of mind that will help you sleep at night, knowing that your family has a safety net. At 1Life we will pay out to the beneficiary the insured amount tax-free as a lump sum when the insured person passes away. Your life insurance policy, disablement and dread disease policies, and income protector all give some comfort that your family and your income are secure.

The 1Life promise All our products are only a telephone call away with savings of up to 22% on monthly premiums. We also offer you a financial needs analysis to ensure that you are buying the right cover based on your individual circumstances and what you can afford.

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