Life assurance is often seen as a grudge purchase – much like disability cover, dreaded disease cover, and income protection cover. However, it is an important part of an overall financial portfolio as it assists loved ones and nominated beneficiaries if you pass on before the term of your cover has passed.
If you are looking to generate returns from your life assurance cover, you will need to choose carefully. It is an error to assume that assurance products provide exponential returns in the medium and long term: it is in the nature of these products to generate diminishing returns as time goes by.
Types of Life Assurance Policies
There are generally two main forms of life assurance: term life assurance and permanent life assurance.
Term life assurance is typically less expensive, and has no cash value. If you die before the policy’s maturity date, it pays out to your nominated beneficiaries.
Permanent life assurance, however, has an investment value and pays out upon your passing. Permanent life insurance premiums maintain the policy’s death benefit and go towards building a cash value in the policy, which is why permanent policies are typically more expensive. They provide coverage for your entire life, not just a predetermined time period as with term life policies. Additionally, permanent life assurance will often refund the premiums you have paid if you outlive the policy.
Benefits of Investing in a Life Assurance Policy
Below we focus on term life policies. If you wish to know more about permanent life assurance, consult with us at Efficient Wealth.
There is usually a minimum period of time that you need to invest in a life assurance policy before you will see any returns. However, once that happens, you will have a financial asset that provides a revenue stream for your loved ones if the worst had to happen. Here are four benefits of investing in life assurance:
- Life Assurance Payouts are Tax-Free:
If you have a life assurance policy and die while your coverage is in effect, your nominated beneficiaries will receive a lump sum payout in terms of a death benefit. Being a tax-free benefit, your beneficiaries do not have to declare this sum in their tax returns.
- Beneficiaries Do Not Have to Worry About Living Expenses:
It is advised that you acquire life assurance equal to seven to ten times your annual income. A policy of this size that pays out to your beneficiaries will ensure that your income will be substituted, and your loved ones will not have to worry about living expenses.
- Pay for Funeral Expenses:
Considering that the normal South African family cannot afford to save money on a monthly basis, it could be determined that they will not have money to bury you should the unfortunate happen. Having a policy would cover these expenses, relieving your family of the costs involved.
- Accelerated Benefits:
Many life assurance policies offer endorsements, also known as riders. These riders can add benefits to your policy, including loss of income, dreaded disease cover, and disability cover. If you are diagnosed with a terminal illness, in some circumstances, you might be able to pay for your healthcare using money from your life assurance policy.
Speak to the Professionals
At Efficient Wealth, we have access to all the major South African life assurers and we are able to provide you with a wide range of options and alternatives. We give you the freedom and flexibility to find the most relevant risk solution and cover. Efficient Wealth offers a range of policies that cover disability, life cover, dreaded disease cover, and income-protection solutions.
Partner with us at Efficient Wealth today.