How to ensure that your life insurance meets the long-term needs of your loved ones
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By John Strydom
SUFFICIENT life cover from a trusted and reliable insurer is a vital component of any successful approach to good money management.
However, just having a basic life insurance policy is not always enough to ensure that your loved ones are able to manage financially if you pass away, especially if your cover does not help them deal with the financial challenges they will face at various times after your death.
There are three distinct phases of financial needs that family members face after a loved one dies, and it’s vital that your life insurance is structured in such a way that it provides the financial support your loved ones need through each of the phases.
Families are faced with the reality of managing the finances of deceased family members,and these are not just long-term money security concerns but also day-to-day financial issues, some of which even occur the day after the person passes away.”
Many families face such financial challenges immediately after the death of a loved one. Most people don’t realise that very soon after a person dies, their bank is required to freeze their accounts, so that the process of finalising their deceased estate can begin and, at that point, it is impossible for family members to access those bank accounts or withdraw money from them.
This can pose significant problems for the family members if they don’t have other sources of money they can use to pay for a funeral or memorial service.
Unfortunately, banks have no legal mandate to pay out money to loved ones after an account holder has passed away.They are permitted to transfer the money in that account to the appointed executor, who then includes it in the often lengthy process of finalising the estate.
The second significant challenge that many surviving families face is the need to access money to pay for their day-to-day living expenses. The expenses don’t stop because a loved one has died, and unless there is money readily available to the family members who are left, they will struggle to pay the bills that will continue to arrive, including lights and water, phone contracts, insurance premiums, loan repayments, school fees, and bond or rent instalments. And that’s not to mention essential costs like food and clothing.
Without the money to cover the living costs for a few months, the family could very quickly find themselves in severe financial difficulty, and potentially end up facing late payment penalties, bad credit records, or possibly even eviction.
The third phase that often presents challenges for surviving loved ones is the costs involved in wrapping up the estate, and the impact these can have on the longer-term steady income the family members need. This is especially true if the person who passed away was the main breadwinner in the family.
In most cases, and where there is enough money in the estate, the executor will settle most of the major liabilities like a bond, vehicle finance agreement, and so on, using the available funds, but then there are also other costs like executor and attorney fees that need to be settled, and only then will the remaining funds in the estate be distributed to the surviving beneficiaries.
Given these three post-death financial needs “phases”, with their distinct money requirements, it is imperative that the insurer you choose to provide life assurance can structure the cover they offer, so that your loved ones do not experience financial difficulties or stress during any of them.
Johan Strydom, head of growth at FNB Fiduciary