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Introduction

Life cover is an extremely important component of risk insurance. However, it should only be implemented for specific purposes, as the premium payer will never enjoy the fruits of the premiums that was paid directly.

We therefore implement only necessary life cover early in our clients’ lives when their outstanding financial obligations exceed their assets materially. We then decrease the level of cover systematically as they near retirement and their assets exceed their outstanding financial obligations materially.

Your estate should also be correctly structured throughout your life so that it does not to attract too much estate duty when you die, thereby decreasing the need for life cover.

Reasons to have life cover

Estate duty obligations

Your creditors have first right on your assets when you die and estate duty is payable on the net assets in your estate that exceeds any rebates. You have to ensure that there are enough funds in your estate to pay all outstanding liabilities.

Protection of business interests

Your business will probably need funds to survive if you should die, especially where you are in a partnership where each partner is critical to the functioning of the business. Buy-and-sell agreements and keyman policies are applicable here.

Capital gains tax

When someone dies it is referred to as a "capital gain event" and capital gains tax will be payable on certain assets in your possession after a rebate that is available at death.

Dependents

Families are regularly exposed to short term tragedy when they do not immediately have access to cash flow after the death of a breadwinner. When an insured dies life cover benefits become payable to an assigned beneficiary within a short time.

Types of cover

Whole life

You are covered for your whole life, irrespective of how old you become.

Until age 65

You are covered until you reach the age of 65, after which you will not have any cover.

Specified term

You are covered only for a specified period, for example a project which will take an estimated completion time of ten years. You are therefore covered only for that specific period, after which you will not have any cover.

Take note that premiums increase materially as people become older and the risk of the insurance companies increase because of this.

Future insurability

We do not take into account any group life cover benefits that you may have with your employer because private risk cover links to you for your entire career, irrespective of where you should work in future.

For example, if you leave your employer’s service after twenty years it might be difficult to get cover as you are much older then and may have developed health problems over the years.

Insurance companies often have stricter underwriting criteria than when you were younger and, and it can even be possible to get any cover at that stage.

If you die while you still work for your current employer their group scheme and your private insurance company will apply aggregation to determine who is responsible for what benefits.

Conclusion

Our firm’s approach towards life cover is to:

  • implement it only for necessary purposes (as discussed earlier);
  • implement it on the level premium pattern with a maximum guarantee period (unless another premium pattern is specifically requested); and
  • specify the term so that the cover ceases at age 65 (unless you specifically request the “whole life” option);

The information provided with this fact sheet provides a broad overview of life cover benefits. However, we make recommendations and implement solutions based on an individual’s unique circumstances taking other considerations into account as well. Please contact us if you would like to assess your current portfolio to identify possible gaps that need to be addressed.