I have been in the industry for more than 30 years and still fail to understand how some people feel about Life Insurance. “Why should I pay for something I will not benefit from?” or “Can I get cheaper cover?” are just but a few of the sentiments I have heard. And when times get tough, they will want to cancel their cover. However, these people are uniformed about the power insurance products hold.
I recently did a full financial needs analysis for a client which resulted in a comprehensive financial plan, including an estate plan. She is a widow in her 50’s and has a large property and business portfolio. The estate planning exercise showed us that there was a need for R14 million cover to settle costs in the estate and taxes, such as capital gains tax and the estate duty payable.
Our first port of call during the meeting was to look at her Will and establish if there would be any practical difficulties in transferring the assets to the beneficiaries. We knew that it would be impossible to get away from the payment of capital gains tax and estate duty due to the fact that no deductions would have been allowed, such as leaving the estate to a surviving spouse. We quoted on the proposal, and the client requested that her accountant review what we had proposed. The accountant agreed with our findings, and we set the policy in motion.
What is the cost of no cover?
Now in this case – the cost of no life cover would be R14million, as opposed to a premium of R4500pm. Without the wealth protection cover in place the executor would need to start selling assets in order to pay the estate duty. Then the question arises – which assets to sell, and are you going to get fair value for them? Her son was named as the heir to the majority of the assets in the Will, which he would miss out on due to the liquidity issues in the estate.
In this scenario the cost of no life cover is enormous. The solution is an easy cost-effective way of saving R14 million in the estate. The client pays the small amount monthly, and the insurance company pays the big amount when the time comes.
A similar scenario is R1 million invested today will pay you an income of roughly R6500pm, after tax with an annual escalation. If people depend on you and your income to live, you need to insure the well-being of your family should something happen to you. Take your income of say R30 000 per month divide that by R6 500 and you get 4.6, now multiply that by the R1million and that is the amount of cover you really need. (R4.6million)
A bread winner who does not provide for their family when they are working will leave the family in a state of financial ruin should something unforeseen happen. Your ability to earn an income is by far the biggest and most valuable asset you have. Again, the cost of no life cover far out ways the cost of a monthly premium. Chat with your IWCP financial advisor and to see the value they can add to your portfolio.
Author:
Noel Shorten: Financial Advisor, Director and Unit Leader of IWCP Mopani.
