Life insurance is a financial planning tool that provides a safety net for loved ones in the event of your death. These policies are becoming more and more popular as no one wants their family to suffer after their death. Although many South Africans are aware of these policies, some are still hesitant to take the leap.
Life cover policies offer many advantages, some more well-known than others. In this article, we will look at some of the advantages of having life insurance in South Africa, including financial security, investment opportunities and tax benefits.
Financial Security For Loved Ones
Life insurance policies are widely recognised for the coverage and protection it offers your spouse and dependents in the event of your passing. These policies pay out a lump sum agreed upon between you and the insurer to your loved ones. By securing a life cover policy, you can ensure that your family will not endure financial hardship in the future and that they can settle all outstanding financial obligations.
This includes any outstanding debt or loans yet to be paid off, as your life cover policy will likely be enough to ensure your family can maintain their current lifestyle.
There are different types to consider when buying a life insurance policy. These typically have varying benefits and associated premiums. One of the most popular policies in South Africa, with a relatively affordable monthly premium, is a funeral policy. This policy pays out enough money to your loved ones to cover your funeral costs and any other related activities.
There are many extras that can be added to your funeral policy, such as adding multiple members to one policy or specifying which family member can access the policy when you die.
Estate Planning
A life insurance policy can help to ensure that beneficiaries receive the assets intended for them. It can help to prevent assets from being caught up in probate court, which is usually a lengthy process. Life insurance payouts can be used to cover estate taxes or debts.
When an individual passes away, their estate is usually subjected to taxes. This can lower the number of assets that are ultimately distributed to your beneficiaries. That’s where a life cover policy can be useful to settle estate taxes and debts and ensure your beneficiaries receive what is intended for them.
It’s important to work with a trusted financial advisor or estate planning attorney to determine the best strategy for your specific situation.
Tax Benefits
In South Africa, life insurance payouts are usually tax-free. This means your beneficiaries will not be obligated to pay tax to SARS on the money received from your policy. As we mentioned, this can provide significant financial relief to your loved ones.
Some insurance companies offer tax-deductible premiums as well. This entails claiming back a portion of your premiums paid when submitting your annual tax returns. However, keep in mind that not all companies and policies offer this feature. You should carefully read through your policy contract to determine whether you have this option available.
Not all life insurance policies are only accessible after death. Some insurers offer relief in the event of severe illness, injury, disability or other specified medical conditions. These types of policies provide income protection for a predetermined term (6 months, 12 months, and so on). They pay out a percentage of your regular income, allowing you to maintain a stream of income. These monthly payments are (typically) tax-free.
If your insurance policy offers income protection as an add-on, it is usually flexible and can fit your unique medical treatments and conditions. Any additional add-ons can increase your monthly premium, so be sure to discuss this with your financial advisor.
Investment Opportunities
Not only does life cover policies hold financial security and tax benefits, but they also provide an investment opportunity.
Certain types of life covers include a comprehensive cash value component in your package. This cash value accumulates as you pay your premiums and can eventually be withdrawn to be used as a loan for immediate cash. Cash value components are typically included in whole-term policies or endowment policies.
Additionally, you can borrow against the cash value of the policy. This means that you use the policy’s cash value as ‘security’ when applying for a loan at the bank for a car or house bond. This is sometimes seen as an easier and faster option than relying solely on a credit score check from the bank.
Please note that cash value components are not available in all life insurance policies. They are usually only available as a service to long-term policyholders who have paid a significant contribution to their policy.
Peace of Mind
Perhaps the biggest advantage of all is the peace of mind that life cover provides. Knowing that your family will be taken care of if you pass away or cannot work offers a profound sense of relief. This is especially important if you have young children or special needs dependents who need ongoing support after your death.
If you have no potential beneficiaries, you can also choose to prescribe a charity of your choice as the beneficiary. In this way, you have the potential to benefit numerous people’s lives even after your death.
Final Thoughts
Overall, the benefits of having life insurance include financial security, estate planning opportunities, tax benefits, investment opportunities, and peace of mind. It’s important to remember that there are various types of life cover policies that can suit a wide variety of needs. Do your own research or schedule an appointment with a financial advisor and get a life insurance policy today! The sooner you start, the better benefit for the loved ones you leave behind.
