As we all know, life insurance is an important part of overall financial and estate planning — and starting early in your 20s can be one of the smartest financial moves. And when it comes to your life insurance policy, it’s important to understand when to consider accelerated or standalone benefits.
Accelerated benefits bring forward a payment that would otherwise be paid out on your passing. They offer a cost effective way of providing you and your loved ones with financial relief from significant lifestyle debts, typically a vehicle loan, mortgage, or debt on your business in the event of a severe illness or disability. However, make sure you understand both the advantages and restrictions of these types of benefits.
When you think about life insurance, you might picture it as a ‘safety net’ for your family should you pass away. However, some insurance policies can offer support while you are still alive, particularly through an accelerated benefit, which are often added to a policy to cover more risk or pay off liabilities. A better understanding of this benefit can help you make an informed decisions about your financial future.
What is an accelerated benefit?
An accelerated benefit is a living benefit linked to your life cover policy. Most insurance policies typically pay out upon death (i.e. death benefits), but an accelerated benefit gives you the option of an early payout if you’re diagnosed with a major illness or experience a permanent disability. The benefit pays out whilst you are alive, helping to pay off any current loans (e.g., a loan for property or a vehicle).
Because an early claim on a policy will reduce the final amount paid out on your passing, accelerated benefits shouldn’t be considered for any life cover taken out to provide income for your spouse, partner or family after your death.
Of course, in terms of a severe illness or disability, you may wish to take out a separate policy to cover gaps in medical aid payments and support lifestyle adjustments for your home or office.
What is the upside of an accelerated benefit?
The importance of accelerated benefits lies in their ability to provide financial relief during challenging times without the cost of taking out a separate policy.
Let’s look at an example. If you have a 20-year mortgage, you could secure a policy that pays it off should you pass away before the term ends. With an accelerated benefit attached to this policy, the mortgage will also be settled if you become permanently disabled or seriously ill.
With this additional benefit, in the event you are unable to work due to permanent disability or a severe illness, you may be relieved of the burden of debt, keeping your cash and savings accounts liquid enough to help you maintain a certain level of lifestyle and comfort. This can be particularly important for a young professional or high-income earner who may not have significant savings to fall back on.
What to consider when choosing a policy?
When selecting a life cover policy with accelerated benefits, it’s essential to understand the terms and conditions linked to the policy. Keep in mind, not all policies are worded the same and specifics can vary between insurers. In short, this means it could affect when and how you are paid.
Three key questions to consider
Ensure you know what illnesses or disabilities are covered under the accelerated benefits.
Some policies may have waiting periods or specific conditions that must be met before a payout is made on these benefits.
Remember that using accelerated benefits may reduce the amount your beneficiaries receive upon your death.
Partner with Investec Life
Want to make the right insurance choices for your future? Investec Life offers tailored insurance solutions to meet your needs, ensuring you have the right cover for life's uncertainties. For Investec Private Banking clients, applying is an easy digital-only process and doesn’t require medical tests. Get a quote or apply online through Investec Online or the App today.
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