Life insurance can be beneficial when it comes to estate planning. While it gives you many options to choose from in terms of who you can add as a beneficiary, your estate could also have an impact on your life insurance when it comes to the claim stage.
Please note:
While we do our utmost to keep our information as accurate as possible, this blog is not considered to be financial advice. It’s always prudent to consult a tax specialist when you are planning for your estate.
It is important to choose a beneficiary
All insurers will ask you for a list of beneficiaries who you would like to benefit from your life cover payout. In cases where there is more than one person, you can choose to split it in a way you see fit. For example, you can choose to have a R5 million life cover payout split 50/50, 20/20/60, or 100% of the payout can go to one person. Not having a beneficiary could mean that your policy will be part of your estate. If no one is aware of you having a policy and there are no listed beneficiaries it will become part of the policies worth billions of rands that have remained unclaimed.
The effect of estate tax on your life insurance policy
In a situation where you have no beneficiaries listed, and you die, your life insurance policy will become part of your estate. But what implications will this have on your policy payout?
When no beneficiary is nominated, the pay-out will form part of your estate and the estate duty calculation will determine the tax payable. With no beneficiary nominated the life insurance payout will increase the value of your estate which could also increase executor fees payable.
However, it is important to note that the deceased estate isn’t liable for the full amount of the estate duty payable to SARS if the proceeds of the policy were paid to a beneficiary (other than the estate). Find out how life insurance is taxed and the impact it will have on your beneficiaries here.
What if you don’t have any beneficiaries to list?
Not having someone to list as a beneficiary on your policy isn't uncommon. Life insurers have created your policy to be flexible enough for you to come back and add beneficiaries later. You can also choose to have a charity as a beneficiary to receive your policy payout if you do not have anyone to list. Updating your policy frequently is encouraged.
