Protecting your family is a fundamental part of ones’ long-term financial planning goals. It is not as simple as just taking out R1 million worth of life cover and leaving it there, but it involves much more.
Ester Ochse, Product Head at FNB Integrated Advice, says, “There are two components of protecting your family, the first is having an updated and valid Will, and the second is having the right level of life cover based on your financial commitments. The outcome of being under insured could have a negative impact on the people you will leave behind, should you pass on.”
“Life cover provides financial protection for loved ones, offering a lump sum payment to beneficiaries on the death of a loved one. This money can help replace lost income, pay off debts, cover funeral expenses or fund future expenses such as education or retirement. Typically, the life cover amount is higher than funeral cover. Life insurance policies provide coverage for a broader range of expenses and financial needs beyond just funeral expenses. Getting financial advice on the appropriate level of cover is advisable to ensure that your family is adequately provided for in the event of your passing or illness,” adds Hilda Nsibande, Business Development Head, FNB Insure.
Ochse and Nsibande share some key considerations when choosing a life cover in 2024, as part of protecting your family:
Debt in the Estate
If you have debt in the estate, be it a home loan, vehicle finance or even short-term debt such as personal loans, then ideally this amount needs to be paid off with insurance such as life cover. If there is no sufficient life cover or cash in the estate, then there could be a potential short fall, and this will result in some assets being sold to cover any short fall. It is worth noting that secured debt typically takes precedence in estate distribution as creditors can seize the collateral to satisfy the debt. Consulting with legal and financial professionals is the first step that can help you navigate complex debt-related issues your estate planning and settlement processes while ensuring that you have sufficient liquidity in the estate.
Duties, Taxes and Fees
There are a few other amounts (estate administration, income tax, estate tax) that need to be catered for when someone passes on and most of these amounts will be charged on all the assets in the estate. These assets could be properties, investments, cars, and other high value personal items. Should you pass on, protecting your family from taxes and fees include estate duty, capital gains tax and executor fees after the reading of your valid Will is the most thoughtful and noble thing to do. There may also be other costs such as property transfers, income tax on the Estate Late account or Masters fees on the Will and estate of the deceased.
Financial dependants
This is probably the most important part of protecting your family and ensuring there is sufficient money for your dependants to ensure they continue to live comfortably. Financial dependants include parents, siblings, children, or spouse. While it is easy to think that taking out a R1 million worth of life cover will be enough to maintain their living expenses, medical aid and schooling. This may not be sufficient if you consider the age of the financial dependants, school fees, tertiary education plans, medical costs, and general cost of living.
“Life insurance typically involves a thorough assessment by the insurer to determine if they can provide you with coverage. They typically ask about your health status, for example, any pre-existing conditions that may affect coverage, your financial situation to determine your ability to pay your premiums, amongst others. This information helps the insurer tailor the coverage amount and pricing to best meet your needs,” added Nsibande.
“Getting the right level of cover has multiple nuances and determining the suitable life cover to ensure that your family and dependants are looked after is vital. Therefore, it is essential to consult with a qualified financial advisor that will help with establishing the sufficient life cover amount. Alternatively, one can use the Life Cover Calculator under the Insurance Tab on the FNB App, which will be able to calculate the amount and level of life cover required as well as disability cover and critical illness," concluded Ochse.
PERSONAL FINANCE