For the average person, there are two
essential tools in estate planning. The first being a Last Will and Testament
and other, a life insurance policy. It is advisable that every person executes
a Will, which makes provision for how their estate will be dealt with after
death. Having a Will in place makes the possibility of disputes arising among
your beneficiaries and family members less likely to occur.
Life insurance, on the other hand,
serves as a source of support, education expense coverage and liquidity to pay
off taxes on deceased estates, to pay ordinary household expenses, to fund
business buy-sell agreements and sometimes to fund retirement plans.
The average household in South Africa
accumulates debts like motor car expenses, mortgage bond payments, overdraft or
personal loans. This begs the question: What will happen to these debts after
your death? The motor car can be repossessed if there is any default in payment
towards the monthly installment; or your family can lose the family home. You may
ask how you can protect your family from such misfortune. The answer is that by
taking out a life insurance policy or policies at a reputable company like
Sanlam, Old Mutual, Momentum, Liberty Life etc., the likelihood of financial
problems emerging after death can be prevented.
The life insurance policy should be
for an amount larger than the total outstanding debts, as indicated above.
Under normal circumstances, the policy could pay out within a week or two, and
the debts can be discharged, or your family members and the Executor can prove
to your creditors that there is enough money in your estate to pay all the
A second life policy can be taken out.
As an example, the wife can take out a policy on the life of her husband and
vice versa, although the wife is the owner of the policy by virtue of her
making payment towards the premiums thereof. The benefit of such a policy is
that it will pay out directly to the owner of the policy, and it will not form
part of the deceased estate. Consequently, the family will have immediate
access to money for the subsistence of their daily needs, as well as to make
provision for the ordinary household expenses.
The alternative to the option above is
that the husband can nominate his wife as a beneficiary of one of his existing life
policies, or cede or transfer the said policy to his wife. In the case of a
transfer of the insurance policy, only the rights in respect of the policy can
be transferred, and not the responsibility for payment of the insurance
premiums. She will immediately become the owner of such a policy, and the
policy, when payable, will be paid directly to the wife, with the
above mentioned benefits.
The policies mentioned above will have
different effects on the estate of the deceased as far as Estate Duty (tax
payable from the deceased estate) is concerned.
There can be no better way to assure
your family and other beneficiaries that you care for them.