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Assurance Policies

Understanding long term financial needs allows the estate planner to plan for
them.

Proceeds from life insurance policies can be used to:

■■ Replace income that the estate planner would have generated to maintain
his spouse or dependants while he was alive.

■■ Pay estate expenses: funeral, income tax, estate administration, estate duty.

■■ The estate planner should try to balance affordability with his beneficiaries’
anticipated needs. Examine debts, income needs, expected future expenses.

■■ On death, the proceeds from an insurance policy go to the designated
beneficiary. If there are minor children, the estate planner may want the
proceeds to be held in a trust for them.

South African “domestic” life policies

■■ All proceeds of South African “domestic” policies taken out on the estate
planner’s life, where there is no beneficiary nominated on the policy, will fall
into his estate on his death.

■■ Where a beneficiary is nominated on the policy, the proceeds will be deemed
property for estate duty purposes, even although they are paid directly to the
beneficiary (subject to partial exemptions based on policy premiums).

■■ Policies which are exempted from exclusion for estate duty purposes are buy
and sell, key man policies, and those policies ceded to a spouse or child in
terms of an antenuptial contract.

■■ The main aim of this tool is to provide liquidity in the estate. The estate
planner may wish to take out life assurance cover, not only to provide his
spouse and / or dependants with liquidity on his death, but for the purpose of
providing for estate duty liability or to cover the mortgage bond liability over a
fixed property, vehicle finance agreements, taxes and winding up costs such
as executor’s fees. To prevent the executor from having to sell an asset out
of a deceased estate to cover these liabilities, it may be preferable and cost
efficient to take out life assurance to ensure estate liquidity.

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