Every bit as important as leaving a well-constructed, legally binding will is having adequate and correctly structured life cover. These are probably the two most essential parts of ensuring that your legacy is protected and that the legacy you leave for your loved ones will be sufficient cover for their needs when you are no longer there.
The life insurance policy stands as an affordable separate, untouchable entity that will ensure important things are covered when you die like executor fees, estate duty, CGT, funeral expenses, the payment of the bond, other remaining debts, education etc.
It is part of a wealth portfolio
It may be a separate entity, but what needs to be understood is that life insurance is very much a part of your wealth planning, as depending on how it is structured it can affect how its proceeds will be taxed, the correct financial provision for loved ones and estate liquidity. We thought it might be helpful therefore to offer some advice on these important considerations when choosing and structuring life cover…
Don’t pay more or less than you need to
Your premiums will be based on the amount of life cover you need, and that depends on what you intend it to cover. For example, If it is to cover bond payments then ensure it is adequate to do so. If you want it to cover education or a stipend for your spouse to live on then it needs to cover that too. In both cases, these should be reviewed as time goes on and your additional wealth increases – which leads us to…
Decide on inflation-linked or fixed premiums
You have the choice of ensuring that escalating costs, like what your family may need to live on, will be adequately covered by having inflation-linked premiums, but then you need to be aware of the rate of escalation of these premiums and ensure that they will still fit with your wealth profile.
If the main function of the policy will be to cover a bond, for example, which is likely to decrease in time you may decide on a fixed payment that will cost you more initially but is easier to budget for as you age.
Nominating the correct beneficiaries
The nomination of beneficiaries too depends on the ultimate goal of the proceeds of the policy. If it is to create liquidity in the estate then the estate should be nominated as the beneficiary, or if it is to be paid to the spouse then they should be the beneficiaries as it will be paid directly to them. If it is for minor children a trust should be created to prevent the Guardian’s fund holding the proceeds until they are of age. There are various tax and other considerations to be taken into account with regard to all these decisions though, so input from a Financial Advisor is recommended.
Other important considerations are the coupling with life insurance or choosing stand-alone living benefits like income protection, capital disability and dread disease cover. That decision can affect the final pay-out of your life cover though, so these considerations should all be decided with the help of a qualified Financial Advisor.
Consult the professionals
Hereford Group has over the last 25 years ensured that every one of our clients is seen as and treated as the unique individuals or businesses that you are. Talk to us today about life insurance and the expert planning of a wealth portfolio that will see you retire in comfort with your loved ones also taken care of.
Just a final word of advice on this one – always reveal any health issues you may have when taking life insurance as a policy not paid out is not worth a thing!