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Will Estate Duty Affect Your Life Insurance Policy?
Will Estate Duty Affect Your Life Insurance Policy?
16 Apr 2021

The impact of estate duty on a life insurance policy can affect the payout that is meant to be received by the beneficiary. However, this may not always be the case. Here is what you need to know when it comes to understanding how estate duty affects life insurance policies.

What is Estate Duty?

When a person dies, all of their assets are placed in an estate which is then handled by an Executor - someone who will handle the distribution of the assets. Most people choose to do this through a legally recognised will, a financial institution, or allowing the state to determine how their assets get distributed.


These assets can include and are not limited to immovable property such as a house, movable property including furniture, cars, technological devices, money in the bank, investments, and policies.


Various deductions are placed on the estate under section 4 of the Estate Duty Act (1995) which determines the net value of the estate, which can have an impact on any payouts that are made to beneficiaries, but how will this impact your life cover?


How does it impact life cover payouts?

If you are a policyholder who has beneficiaries listed on your life cover, estate duty can affect the life insurance payout. However, this is not always the case. What determines whether you will pay estate duty on your life cover is how much you will have left after the deductions have been made under section 4 of the Estate Duty Act.


The duty is levied on the dutiable amount of an estate that does not exceed R30 million at a rate of 20%. Estate duty is levied at a rate of 25% on the dutiable amount of an estate that exceeds R30 million.


For example:

When you die all your assets will be assessed by SARS. The Estate duty will be applied based on how much you are worth at the end. People who have less than R3.5 million left will not be affected by this, however, people who have a life insurance payout of R3.5 million - R30 million and more will be liable to pay the Estate duty.


Are beneficiaries responsible for paying estate duty?

There is a chance that a beneficiary will be affected by this duty should you fall into the tax bracket that holds you liable for estate duty. It is crucial to keep in mind that any assets, debt or payments that need to be made will impact your loved ones. While you can use your life cover as surety for a loan, it is important to remember that it can impact the payout that your loved ones will receive.


Keeping this in mind can help paint a realistic picture for people who are aiming to create a financial safety net, to ensure that there will be no financial shortfall even when they are no longer around to do so. 

Need more information on MiWayLife? Read about our life insurance product, or get a life insurance quote in 30 seconds. Alternatively, call us on 0860 64 54 33 .
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Terms and conditions apply. Eligibility, cover and benefits are determined on individual risk profile. MiWayLife is an authorised FSP (No. 45741) and its product offering is underwritten by Sanlam Life Insurance Limited, a registered long-term insurer. MiWayLife is a division of Sanlam Life Insurance Limited - Reg No. 1998/021121/06