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Debts don’t disappear when you pass away, they have to be paid, as do the costs of winding up your estate and distributing your assets to your loved ones. When your life insurance policy is part of your estate plan, you can ensure that these costs are paid, leaving your loved ones debt-free assets that give them financial independence!
The importance of life insurance for estate planning
Your estate is everything you own, such as property and investments, and everything you owe, from debts to taxes. Life insurance is a vital component in your estate plan as it can ensure that your heirs inherit only what you own – your assets, and not what you owe – your debts!
What is estate planning and why is life insurance so important in estate planning?
Estate planning is the process of planning for:
- Who inherits your assets when you pass away
- What happens to your debts
- How your estate costs will be paid
- Your family’s living expenses immediately after and in the years after death
Who inherits your assets is detailed in your will, which will also name an executor. The executor is responsible for carrying out your wishes detailed in your will and winding up your estate. Winding up an estate is a legal, formal process that incurs estate costs such as administration costs and executor fees.
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Before your executor can distribute your assets, they have to pay all the estate costs, all your debts and any taxes due such as personal tax and estate duty. If your taxes, debts and costs are high, your assets may have to be sold to pay for these, including a family home. However, if you have life cover the pay-out from a policy can be used for any outstanding debts and the costs of winding up an estate! This will ensure your loved ones inherit all your assets, debt free, and don’t have to find money to pay estate costs or taxes.
You can read more about estate costs in this blog ‘What does death cost?’ and find out what your estate costs could be using the 1Life Estate costs calculator.
Another component of an estate plan is making sure your loved ones have funds for living expenses during the time it takes to wind up your estate, which in South Africa can be months, sometimes years! The pay-out from a life insurance policy can be used to cover daily living costs during this time.
Three things you need to know about life insurance and estate planning
There are three key reasons why life insurance must form part of your estate planning:
1. South African life insurance policies pay the sum assured to the beneficiary or beneficiaries named on the policy
Life insurance pay-outs to beneficiaries do not form part of the estate, which means your beneficiaries can use as soon as they are paid!
2. Life insurance policy pay-outs are tax free
The sum assured is the amount your beneficiary will receive for a valid claim, no tax payable!
3. Life insurance changes family’s lives for the better
A life insurance policy pay-out ensures your family is cared for when you are no longer around. With a pay-out, they can pay for a good education ensuring future generations can care for their families and grow their generational wealth.
Top tip: Make sure you name a responsible person or persons as beneficiaries on your life insurance policy who will use the pay-out wisely. You can read more on selecting the right beneficiary in this blog and find out how a pay-out can secure your family’s future in ‘How to ensure a policy pay-out changes your loved ones’ lives.’
1Life Insurance for all your insurance and estate planning needs
1Life Insurance is a licensed life insurance provider offering a range of flexible life cover policies that you can tailor to your needs and budget. You can take life cover for a sum assured of between R300 000 and R10 million at a competitive premium, and save on premiums if you buy online. 1Life also offers the 1Life Wills and Estate Plan that can cover the costs of winding up an estate and provide liquidity to beneficiaries and the executor. You can manage your 1Life Insurance life cover policies on the online policyholder portal or WhatsApp service centre. Claims can be submitted online and valid claims are assessed and paid quickly. 1Life Insurance was awarded the Life Insurance Category winner in the 2023/2024 Ask Afrika Icon Brands Benchmark survey. You can follow 1Life Insurance on Instagram, Facebook, X and Youtube.
Your estate needs life insurance
Life insurance policies give loved ones financial stability. Whether it’s a pay-out that is used for debts, to cover costs during and after the estate is being wound up, or to grow generational wealth, your life cover will change lives for the better when life insurance is part of your estate plan! Speak to a skilled 1life Insurance consultant today about the benefits of insurance for your estate.