Estate planning and life insurance
The question I would like to ask you today is whether estate planning formed part of the process when you took out your life insurance? Unfortunately, the life insurance industry focuses mostly on the sale of a product rather than proper financial planning that should go hand in hand with taking out life insurance. This creates a few significant problems that we regularly see in practice.
Why should estate planning form such an integral part of taking out life insurance?
Firstly, it is important for you to understand the reason for life insurance. Most people feel that life insurance is a grudge purchase and therefore they do not give it the attention it deserves. It is much more than leaving a few rand for your wife and kids. It is leaving them debt free, it is making sure that you have sufficiently provided for estate duty, capital gains taxes and executor fees, it’s about replacing your income that the household was relying on, it’s about providing for education for your kids.
Secondly, you need to know how much. You might be currently paying for something you don’t need, or you might be thinking that R1 million should do the trick. When you make estate planning part of taking out life insurance, a calculation is done to determine exactly how much life cover is needed at death.
Thirdly, you must consider the technical aspects that go hand in hand with life insurance. I have seen numerous wills referring to life insurance policies. If you appointed a beneficiary in your life insurance policy, it’s a legally binding agreement that your will shouldn’t refer to.
The appointment of beneficiaries should also form part of your estate plan and not always just the default option of your spouse.
Lastly, your life is changing frequently, and so is your life insurance needs. Like a good estate plan that needs regular reviewal, your life insurance should also be reviewed simultaneously with your estate plan. If your life insurance process didn’t include estate planning, I suggest you contact us sooner than later.
Heinrich Coomans | CA(SA) | CFP is a director at Affluence Group and specialises in Investments, Personal and Business Insurance. Enquiries: heinrich@afgroup.co.za or 084-586-9509.