So we all know why a family man or woman needs life insurance. They need it to pay off debts and provide loved ones with an income. But why would someone need life insurance who is
• not looking to start a family or get married
Let’s find out, shall we?
The single and still looking person
Two reasons jump to mind regarding why a single person would want life insurance:
• This person intends to start a family one day, or
• They owe money & life insurance was part of the deal
Think about it, if neither of these apply to you, why bother with life insurance, right?
Just to make sure we’re on the same page here, when we use the words ‘life insurance’ we mean insurance which only pays out a lump sum when you pass away.
If you’re not leaving anyone behind when you pass on & there’s no immediate family to leave your assets to, then life insurance isn’t usually your top priority. An attitude of, “I won’t be around, so I don’t care”.
It only gets complicated when you want to leave assets to a person or an organisation. Don’t think because you own a ton of assets, and you’re debt-free, that it’s not going to cost you a lot of money when you pass away.
The wealthy person
Think only poor people have money problems? Think again. Having money creates its own set of problems.
One of the biggest problems those with money face, is tax. When we die, it’s a last opportunity for the state to extract some tax from you. What if you don’t have the cash to settle the tax? Auctioning off your assets is one solution.
The confirmed bachelor or spinster
Being over 40 & single is enough to raise eyebrows at most gatherings. Unfortunately, this attitude carries over to government as well. If you were to die, and leave everything to your partner, then they let you off the tax hook. Die without a partner, and the taxman starts rubbing his hands.
Why it’s not ideal to die wealthy and single
Here is the 30 second guide to calculating estate duty for the single person:
• Find the market value of every asset you own
• Include every life insurance policy owned on your life regardless of whether you own it or not
• Add up the lot to get a grand total
• Deduct all your debts, final expenses, hospital bills, outstanding income taxes, etc.
• Deduct all life insurance owned on your life which isn’t going to end up in the hands of a family member or in a business where you had a controlling share.
• Deduct all the assets being left to your partner (Oops! You don’t have one…I forgot)
• Arrive at a net estate value
• Deduct R3, 5 million from whatever that amount is
• If an amount is still showing, then tax that at 20%
Imagine for a moment that the dutiable amount is R1 million. According to our calculation that’s R200,000 in estate duty taxes!
What’s the cheapest way to take care of that niggling tax problem besides getting married?
Life insurance of course.
What other options do you have besides life insurance?
• You could sell a car or two to pay the estate duty taxes, or
• You could use some of the spare cash lying around in your cheque account
You need to realise one thing though. It may have taken you a lot of time and effort to build up these assets which you’re about to give away.
Wouldn’t a R500 a month life insurance policy have been a more affordable option?
But life insurance does come with its own problems.
Look back at our 30 second guide to estate duty taxes. Specifically, look at the second point. Buying life insurance is simply going to inflate your estate creating even more of a tax problem.
There’s no way of getting around that one. The best thing to do is boost your life cover by 20% to take care of the problem.
Every one of us reading this article had to work hard to get to where they are now. Few of us have money fall into our laps. Even if you’re as single as single can be, we bet you wouldn’t be too happy losing everything you’ve worked so hard for.
Our advice is to seek the advice of a financial advisor and have them calculate any potential estate duty liability. If there’s a problem, then life insurance is your solution.
And if you’re still young and penniless? Buy that life insurance anyway. Who knows where you will be ten years from now. You are worth much more than you might think.
Until next time.
The InsuranceFundi team