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Usually, when you apply for a loan at the bank, the requirement is that you need life insurance cover equal to the amount that you want to borrow from the bank. The life insured will then cede the policy to the bank. When you pass away before the loan is repaid to the bank, the policy benefits will be used to pay off the outstanding debts that you have left behind. If there are any benefits left over, depending on which product you have selected, they will be paid out to the elected beneficiaries on your policy, or if there are no beneficiaries listed on your policy, it will become part of the deceased’s estate. The executor of the last will and testament will then deal with the benefits.
If you cede a pure life policy, then the sum assured may well be in excess of the loan, so benefits may be greater than the loan and if there are any benefits left over it will be paid to your beneficiaries.
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