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Your loved ones will inherit your estate, which is all your assets. It can empower them and secure their financial future for generations to come! But your estate also includes your debts, and there are costs involved in winding up an estate, as well as taxes that need to be paid! Using life insurance as part of your estate planning will help you avoid a situation where debts, taxes and costs reduce the value of your assets and your loved ones’ inheritance!
The importance of life insurance in estate planning
Estate planning needs to include a will, which details who inherits your assets, as well as providing for the costs of winding up an estate, taxes and any liabilities (outstanding debts). Costs include executor fees, fees paid to the Master of the High Court and admin expenses such as advertising to ensure all creditors are informed. Taxes can include personal tax due at the date of death by the deceased, as well as capital gains tax and estate duty.
In addition, an estate plan also needs to ensure that your loved ones have access to funds during the time in which the estate is being wound up, so that they can pay their daily living expenses including food, transport and education.
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Using life insurance in estate planning not only ensures that the costs of winding up an estate and living expenses can be paid, it also ensures your family has a secure financial future! Here are three insights that show why life insurance should be part of your estate plan!
1. Life cover can provide liquidity to cover winding up costs and taxes
Life insurance pay-outs for valid claims can, in part or whole, cover the costs of winding up an estate as well as any taxes. This is critical as it ensures assets don’t need to be sold to pay these costs.
When an estate is wound up, before any assets and inheritances can be transferred to the heirs named in the will, all costs and taxes have to be paid! If these are extensive which they can be, some assets such as a family home may need to be sold. Include life insurance in your estate plan and the proceeds from a valid claim can be used to pay costs and taxes! Which means your assets remain intact, and ensures your heirs inherit as you intended!
You can read more about the costs involved in winding up an estate in this blog.
2. Life insurance pay-outs for valid claims can be used to fund living expenses while the estate is being wound up
The admin needed to wind up an estate is extensive. Many formalities have to be complied with, including notifying the Master of the High Court, ensuring creditors are identified and paid, and that assets are correctly valued. This can take months, sometimes years. During this time, the accounts and investments of the deceased are frozen, which means they cannot be used to pay any living expenses.
Valid life insurance claims pay quickly, and pay-outs are paid directly to the beneficiary or beneficiaries named on the policy. These funds can be used to pay living expenses while the estate is being wound up as the proceeds from a life insurance policy do not form part of the estate.
Good to know! The pay-out for a valid claim for a life insurance policy is tax free if it is paid to a named beneficiary or beneficiaries! This gives your loved ones certainty as they know how much they will receive.
3. Life insurance ensures loved ones are protected
Life cover makes a lot of financial sense, but it also brings peace of mind! Providing for your family’s future financial needs ensures they can maintain their standard of living and grow their generational wealth. This can be as simple as providing for future school and university fees, or a home to live in, debt free! When you know that these costs will be covered when you pass on, you don’t have to worry about what would happen! Instead, you can enjoy time with your loved ones knowing that by including life insurance in your estate plan you have taken care of them.
Naming a beneficiary is crucial
In estate planning and life insurance the details matter! To ensure your policy pay-out can provide for costs and living expenses, you must name a beneficiary, a responsible adult, to receive the pay-out for a valid claim.
Always talk to your beneficiary and tell them what kind of policy you have, how to claim, and how you envisaged the proceeds being spent so they know how to use the pay-out wisely to grow their generational wealth. You can read more about naming a beneficiary in this blog.
Trusts and life insurance in estate planning
If you want your minor children and/or any dependants to benefit from your life insurance policy, you will need to set up a trust in terms of your will to ensure the funds can be used for their benefit.
Children under the age of 18 cannot take possession of an inheritance, and the funds are paid either into a trust or the Guardian’s Fund that is administered by the Master of the High Court. Access to money in the Guardian’s Fund is limited, whereas when you set up a trust you appoint trustees to manage the money and pay expenses without limitations.
1Life Insurance changes lives
1Life Insurance has been changing lives for nearly two decades with flexible policies that can be tailored to your needs and budget, with life cover from R300 000 up to R10 million. Your loved ones can use the funds to ensure that they inherit assets and can pay costs, taxes and living expenses! You can work out how much cover you need using the 1Life Insurance Life Insurance calculator, and buy life cover online and save up to 13% on premiums. 1Life policyholders can access and manage their policy safely and conveniently in their own time on the online policyholder services portal and WhatsApp service centre.
1Life Insurance has been voted an iconic brand 2 years in a row, in the 2022/2023 and 2023/2024 Ask Afrika Icon Brands Awards and has been recognised as South Africa’s #1 direct life insurer in the annual Swiss Re Reports for 11 consecutive years! Our policyholders are always top of mind and in 2023 and 2022, we had the highest net sentiment in the PWC SA Insurance Index Report. Talk to us today to find out how we can change your life!
Protect your family and your assets
Your life cover is an essential part of your estate plan and protects and provides for your family and loved ones, empowering future generations for years to come! Make sure your life insurance policy is part of your estate plan today!