Death insurance: What do you need to know?
Your family always deserves the best protection. So, you don’t want them to really struggle financially if a major setback happens.
Starting from there
How can you prevent a situation where your surviving dependants have problems paying foreseen and unforeseen costs after your death? And how can you prevent them from having to pay a significant amount in (high) inheritance tax using their own savings?
By taking out death insurance you will provide comfort and peace of mind, which may alleviate some of the emotional distress.
Why is death insurance useful?
Death insurance can be useful in various situations.
In short, death insurance will give your partner and/or children a strong financial safety net if you die.
What types of death insurance are there?
As a general rule, if you die the insurer will pay out a pre-agreed capital sum to the beneficiaries. This can be done with one large sum or through an annuity (an amount which the insurer pays at regular intervals).
We draw a distinction between three types of death insurance:
- Term death insurance
This insurance is often chosen to cushion the death of the breadwinner in a family. If the insured dies, the insurer will pay out a death benefit before a pre-defined period expires (e.g. 15 or 20 years).
- Lifelong death insurance
With lifelong death insurance the insured capital will always be paid out. If the insured dies, the insurer will pay out this amount. These policies often take the form of burial or funeral insurance. The policy can help to pay the inheritance tax or to finance the funeral.
- Outstanding balance insurance
This is perhaps the best known form of death insurance. Outstanding balance insurance is very often taken out within the context of a mortgage loan even though this is not legally required. Though it is common for lenders (banks or other lending institutions) to request this. If the insured dies before the loan expires, then (some of) the remaining balance on the loan will be repaid.
What are the main risks that are not covered by death insurance?
The death of the insured is never covered in any of the following situations:
- as a result of suicide within one year following the commencement of the contract;
- if the death was caused by a deliberate act or at the instigation of any of the beneficiaries;
- as a result of a (civil) war event.
Other exclusions also apply. Therefore, before taking out death insurance, it is always very important to read through the general terms and conditions as well as the information sheet.