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Long Term Insurance

How Will Life Insurance Help Me?

It’s a subject no one really wants to think about. But if someone depends on you financially, it’s one you cannot avoid. In the event of a tragedy, Life Insurance proceeds can:

  • Pay for funeral costs
  • Help pay the bills and meet ongoing living expenses
  • Pay off outstanding debt, including credit cards and a home loan
  • Continue a family business
  • Finance future needs like your children’s education
  • Protect a spouse’s retirement plans

Value Proposition

Choose A Life Stage

Now that we agree on how important Life Insurance is, where do we begin? Life Insurance is about You. Your Needs, Your Concerns, Your Dreams. Choose a Life Stage that defines where You are in Life.

Why Should I Buy Life Insurance?

If no one depends on you financially, your path to financial security may be smoother than most. However, it also means that if the unforeseen were to happen, you may not have someone to rely on for support—financial or otherwise. That’s why there are certain considerations to consider:

How Do I Determine If I Need Life Insurance?

Calculate Your Needs. When purchasing Life Insurance, the question really isn’t how much you need, but how much capital your family will need at the time of your death, which depends on two variables:

  1. How much will be needed at death to meet immediate obligations? This amount considers all final expenses: uncovered medical bills, funeral and estate-settling costs, outstanding debts, home loan balance and college costs to name a few.
  2. How much future income is needed to sustain the household? This is the number you’ll arrive at after calculating the “present value” of cash-flow streams your family will need after your death.

What Else Is Important During This Life Stage?

Putting off the basics when you’re just starting out, like reducing debt, starting a savings programme and planning for retirement only makes things more difficult down the road. The sooner you start, the better off you are.

You’ll want to create an emergency fund equalling three to six months’ worth of basic living expenses. When you consider all the demands on your monthly budget, the thought of setting aside money for long-term savings probably seems daunting.

Fortunately, time is on your side. Through the power of compounding interest, just R25 a week set aside over 15 years builds a nest egg of more than R 31,000.00 assuming a 6% annual return.

Why Should We Buy Life Insurance?

The key is to imagine you’re at the beginning of a long-term building process. Financial security is a combination of insurance protection and savings and investments that accumulate over time. Start small and cover all your bases. As your career progresses and your income increases, your financial security will grow as well.

How Do I Determine If I Need Life Insurance?

The first step in establishing your financial security is to confront the biggest threats to it by asking yourself some tough questions:

What would happen if you or your spouse or partner became sick, injured or died? These situations can be devastating to your family’s financial health. That’s where insurance comes in.

Life Insurance can provide your family members with the resources to maintain their lifestyle when you die. It can replace some or all of your income, pay off debts, cover funeral costs and can even help fund longer-range needs like college tuition or retirement.

Insure your spouse or partner as well, even if he or she doesn’t work outside the home. A stay-at-home parent provides vital household services—childcare, house upkeep and transportation to name a few—that would be expensive to replace.

Disability Insurance is also a must. It will replace a portion of your income if you are unable to work due to a disabling illness or injury.

Why is that important? Think about how long you could make ends meet if your pay check suddenly disappeared. A LIFE Foundation survey found that most workers wouldn’t make it more than a month before serious financial sacrifices would have to be made.

Many larger companies and some smaller ones offer some disability coverage to employees through a group plan. If you need more, it may make sense to buy additional coverage through your employer’s group plan, if available.

Buying your own Disability Insurance policy independently is also an option worth considering. Unlike group coverage, privately owned insurance stays with you even when you change jobs.

What Else Is Important During This Life Stage?

Given all the costs a young family faces, the idea of saving may seem impossible. But it’s crucial to get into the habit early, and important to have a source of cash to fall back on in an emergency. If you have credit card debt, your priority should be to pay it off. High interest rates on credit card debt can turn into a long-term drag on your family’s financial health.

Invest For The Future

If you haven’t already, you should immediately enrol in your company’s retirement savings plan. This will probably be the primary source of your retirement savings, so start early. Some companies even match employee contributions.

A Good Education Is The Best Gift You Can Give Your Child

The cost might seem out of your reach, but here is a straightforward way to make sure you have enough money to pay your child's college or university fees:

  • Determine how much money you will need to pay the fees when your child goes to college or university.
  • Draft a plan setting out how much you should save and invest from now until your child starts tertiary studies, considering any existing provision you may already have in place.
  • Select the most appropriate savings products and investment funds to implement your plan.

Established Families: You may be juggling kids at home or college, plus the demands of your job. You don’t have as much time as you once did to recover from unexpected setbacks.

Why Should We Buy Life Insurance?

At this point, the years ahead will most likely be the most productive and highest earning of your life. However, like many families, you may be using a significant amount of your savings to put your kids through college just when it’s time to be aggressive in saving for retirement.

What would happen if you died suddenly? Would your children have to drop out of school? Would your spouse or partner be forced to drastically cut back on the family’s lifestyle? And what about retirement plans? Life Insurance proceeds can allow them to pay off the home loan, continue to pay for college, and if invested wisely, provide a stream of income to your spouse or partner for the future.

Life Insurance Is A Must, But What About Disability Cover?

Disability Cover is a must. It will replace a portion of your income if you are unable to work due to a disabling illness or injury.

Why is it that important? Think about how long you could make ends meet if your pay check suddenly disappeared. A LIFE Foundation survey found that a majority of those working wouldn’t make it more than a month before serious financial sacrifices would have to be made.

Plus, if you were having difficulty meeting everyday expenses, how would you continue to fund your retirement needs? Many larger companies and some smaller ones offer some disability coverage to employees through a group plan.

If you need more, it may make sense to buy additional coverage through your employer’s group plan, if available. Buying your own Disability Insurance policy independently is also an option worth considering. Unlike group coverage, privately owned insurance stays with you even when you change jobs

What Else Is Important During This Life Stage?

Many workers from our parent’s generation could count on a financially secure retirement thanks to a guaranteed lifetime pension from their employers.

That’s no longer the case. These days, workers must take responsibility for their own retirement. By this point you should have quite a bit of savings tucked away in a savings account or a Retirement Annuity, or some other type of tax-deferred retirement plan. If not, it’s never too late to get going.

Most of these plans have a so-called “catch-up” provision that allows you to contribute extra money. Make sure your retirement investments are well diversified. Many workers unwittingly allow their own company’s stock to take up a dangerously large portion of their retirement accounts.

Companies often encourage this by offering their stock for sale to employees at a discount or by using it to match retirement plan contributions.

But if you’re receiving a regular pay check—not to mention Health Insurance and other benefits from a company, a great deal of your personal financial security already rides on the fortunes of that firm.

Don’t compound that risk by making its stock a large part of your retirement portfolio.

Why Should We Buy Life Insurance?

It may seem counterintuitive that empty nesters or retirees need Life Insurance, but some still have dependents, such as disabled adult children. Many also still have financial obligations, such as the payment on a home or second home, that could become a burden if a spouse died or becomes disabled. More importantly, if you died today, your spouse could outlive you by decades. Would they have to make drastic lifestyle changes to make ends meet?

Life Insurance coverage can preserve the retirement plan you worked so hard to put in place and ensure your estate will be passed on, intact, to your survivors. A policy’s death benefit can help foot the estate tax bill from SARS and provide a legacy for your children and grandchildren, even if you use up most of your assets during your lifetime.

How Do I Determine If I Need Life Insurance?

What if you’re retired or nearing retirement and you don’t have Life Insurance? You may think that you’ll no longer qualify due to your age or health conditions you might have. That’s not necessarily the case. Final expense insurance is a form of life insurance that requires little or no underwriting, which means almost anyone can qualify.

That’s because these policies are only intended to cover final expenses and not longer-range expenses like ongoing living costs or college and retirement funding. Final Expense Insurance typically comes in two varieties. Immediate full benefit policies, which pay the full-face value upon your death, are generally available to people with no serious health concerns. Graded benefit policies provide limited benefits during the first few years and are available to people with serious health concerns.

These policies can provide the peace of mind of knowing that your survivors won’t struggle to pay for your funeral or be saddled with outstanding medical bills and other debts.

What Else Is Important During This Life Stage?

The demise of traditional pension plans means many retirees face the possibility of outliving their savings. To make sure your money and your lifestyle will last if you do, consider purchasing a Lifetime Annuity. Think of an annuity as a do-it-yourself pension plan. You provide a lump sum of money to an insurance company and in return you get a guaranteed stream of regular payments for the rest of your life (or for some specified period).

Broadly speaking, annuities come in two varieties: variable and fixed. Variable annuities include an investment component. If those investments do well, your payments will grow over time and your nest egg will be sheltered from inflation. Fees for variable annuities can be high, but they can be the right choice during periods when low interest rates make fixed annuities unattractive.

A fixed annuity is simpler. Your lump-sum savings are translated into a stream of payments that do not change. The size of your payment is based on your age, prevailing interest rates, and, to a certain degree, your gender (women live longer so their payouts are smaller). Some companies will allow you to customise an annuity agreement in certain ways at the time of purchase, such as by adding a cost-of-living rider or arranging for payments to continue until both you and your spouse die.

Ideally, you should commit only a portion of your retirement savings to an annuity and keep the rest in other types of investments, such as stocks and bonds that can grow over time and protect you from inflation. Having an annuity can give you the freedom to be a little bit more aggressive in your investment accounts, knowing you have a steady source of income to fall back on. If you decide later you want to increase your guaranteed payments, you can take an additional portion of your savings and put it into another annuity.

Keep in mind that annuities are not for everyone, and it is always wisest to sit down with your financial advisor who can guide you through the process and help you choose what’s best for your risk tolerance and retirement timeline.

Why Should The Company Buy Life Insurance?

To get a sense of how well you’ve planned for these responsibilities, ask yourself these questions:

  • What will happen to my business and family if I die or become disabled?
  • What will happen if certain key employees die or become permanently disabled?
  • How can I attract and retain the best employees?
  • How can I help ensure that my business will be able to weather unforeseen financial hardships?
  • What will happen to my business when I retire?

Explore this section to learn more about how insurance can help protect your business while giving you a competitive edge.

One of the first things any business owner needs to consider is how to protect against events that may threaten the future of the business, like the death or disability of a proprietor, partner or key employee.

1. Individual Life Insurance

Let’s start with the worst-case scenario: the death of one of the business owners. What will happen to your business if you die? Many small-business owners take out loans to help grow their businesses, and often secure these loans with personal assets. If you have business loans and were to die before they were paid off, you might think your family could sell or liquidate the business to cover the debts and provide financial security for them.

This rarely happens. When the family is forced to sell the business quickly, they may have to sell at a discount or during market conditions that make the business less attractive. In other cases, the business may be worth very little without the proprietor or partner. Individual Life Insurance can protect your family by providing funds to cover debts, ongoing living expenses in the event that something happens to you.

2. Disability Insurance

Disability Insurance replaces a portion of your income if you were to become sick or injured and unable to work. It’s an important type of insurance coverage that is often overlooked, as few people stop to consider what would happen to their business and their personal income if they were unable to work.

In addition, business owners should consider business overhead insurance, which reimburses a business for overhead expenses in the event a business owner becomes totally disabled. A policy typically pays benefits for one to two years and helps cover expenses like salaries, taxes, employee benefits, rent, mortgage, utilities, equipment, malpractice premiums, etc. That could mean the difference between a business surviving or closing its doors.

3. Buy-Sell Agreements

Life Insurance also can be structured to fund a buy-sell agreement. This is a contract among owners to buy a deceased owner’s share of the business at a previously agreed upon price in the event of death, disability or retirement.

Why are these agreements so important? You might think that if you die, your family could maintain their income by running the business themselves or by hiring someone to handle the day-to-day management. The fact is, your loved ones may not have the skills or the desire for the job, and your co-owners may not welcome the idea of an unintended partner.

With a properly structured and funded buy-sell agreement, your business partners won’t have to scramble to come up with the money to buy out your share of the business, and you’ll be guaranteed that your survivors will be compensated fairly and promptly.

Buy-sell agreements are typically funded by Life Insurance policies purchased on the lives of each of the business owners. The amount is usually specified in a contract created with the help of an attorney. You can enter into a buy-sell agreement at any time, but it often makes sense to do so when a business is formed or when new owners are brought into the business. Because business values can fluctuate, it’s important to review the contract with your accountant at least once per year or to include a calculation method in the agreement.

Also, be sure the insurance coverage funding the agreement is up to date. Business owners can also insure against the risk of becoming disabled and unable to work. In this case, disability income buyout insurance would fund the buy-sell agreement, allowing the disabled owners to be bought out, typically after a one-year waiting period.

4. Key Person Insurance

Key Person Insurance is another essential component of a smart business continuation plan. Key Person Insurance is Life or Disability Insurance purchased by the business for such an employee and payable to the business. When a key person dies or becomes disabled, insurance can help make up for lost sales or earnings or cover the cost of finding or training a replacement.

5. Suretyship Protection

Business owners often conduct their businesses through limited liability entities, because they wish to protect their personal estates from creditors if the business venture fails. Suretyship agreements effectively remove the benefit that these limited liability entities offer, as they remove the vital separation that there should be between personal financial affairs and business obligations. As a result, personal assets are exposed to business risks and this situation invariably affects personal estate planning negatively.

Should the surety die or become disabled, the creditor may wish to call up the loan even though the principal debtor is still making repayments. Suretyship protection is a Life Insurance policy taken out by a principal debtor on the life of an individual who stands surety for the debts of the principal debtor. If structured correctly, the insurance policy will provide sufficient funds to repay the outstanding balance of the debt, thereby releasing the surety's estate from this liability.

6. Loan Account Protection

The need of the business is therefore to be able to repay the loan on demand if called upon to do so by the owner/director, or any other person like an executor who may be authorised to act. This might occur when the owner/director becomes disabled or passes away. If the business is not able to settle the loan at that time, it might be declared insolvent thus negatively affecting all concerned. Proper financial planning would avoid such consequences.

The solution is for the business to insure the life of the owner/lender for an amount equal to the outstanding loan. This is a simple, inexpensive and efficient way of ensuring that cash is available at the required time.

7. Business Overheads Cover

This will cover the running expenses of a business when a key owner is absent due to disability and he/she is unable to contribute to the normal turnover. The Business must identify the key owners, on whom it depends for the generation of the business's income. The business insures these owners' lives so that if they become disabled, either permanently or temporarily, the insurer will pay a monthly amount to the business. The business uses such amount as it deems fit in the settlement of regular fixed expenses.

8. Debtors Cover

Often businesses are compelled to grant credit to certain purchasers of their goods or services to make sales. While sales are essential for the survival of a business, credit sales bring with them a risk of default or non-payment. Where the debtor is a large entity, the risk of this is relatively low and therefore acceptable.

However, if the debtor him/herself is the owner of a relatively small business, the risk of default due to the owner's death or permanent disability is large. Where an unmanageable debt concerns a substantial amount of money, it can have a catastrophic effect, potentially causing the creditor, through no fault of the creditor, to be declared insolvent.

The management of default-risk requires timely identification of potential problem areas and the implementation of an appropriate action plan. The type of client for which one could effectively utilise this, would be a debtor business with a single owner or where the amount outstanding will have a significant impact on the creditor's cash-flow should it not be repaid.

The solution would be the appropriate use of a Life Insurance policy that can reduce this risk substantially by insuring the debtor's life against death or permanent disability.

The Creditor Can Accomplish This In One Of Two Ways:

Option 1:

The creditor identifies a debtor for whom this scheme is required and then applies for a suitable life policy on the debtor's life. The creditor will be the applicant/owner, premium payer and beneficiary for the proceeds. The creditor then adds the policy premium to the sales price/invoice for the goods or services sold, which the debtor must repay.

Option 2:

The creditor insists, as a condition of credit, that the debtor takes out and pays for a policy on his/her own life. The debtor then cedes the policy collaterally to the creditor for as long as the debt remains unsettled. Once repaid, the session can be cancelled. If the debtor passes away or is declared permanently disabled from performing his/her work functions while the debt is outstanding, then the policy will pay out to the creditor. The creditor offsets the amount received against the debt and repays any excess to the debtor's business or estate.