Life cover is one of those really difficult things to talk about. Firstly, it involves an acceptance that you may die sooner rather than later and, secondly, it also means that, technically, someone benefits from your death.
It’s natural to worry that your loving partner, and devoted parent to your children, may meet someone else after your death who may have undue influence over them financially, let alone worrying what your ex-spouse may do with your kids’ inheritance.
Leopold Malan, executive director at insurer BrightRock, believes that any sensible parent who is relying on maintenance for their child from their ex-spouse should consider having a policy in place should the ex-spouse pass away.
“It is an asset that you want to protect,” argues Malan, who adds that the parent who is reliant on that maintenance should purchase the policy to ensure that it remains in place. That sounds sensible, but how would you feel if your ex-spouse phoned to ask for your permission to take out cover on your life? Especially if that divorce had been rather acrimonious?
Fortunately, some insurers have an option that allows life cover to be paid out as an income rather than as a lump sum.
This is not only for cautious ex-spouses, but for anyone who is concerned that their beneficiaries may blow the money rather than use it to provide an income to replace that of the breadwinner.
“We see cases where there is massive pressure on an individual if they inherit a lump sum to share it with the community, even if the reason for the cover was to provide an income.
“Few people are equipped to handle a lump
sum and don’t realise that while R1 million may sound like a lot of money, it only provides an income of R5 000 per month,” says Malan, who adds that many clients are structuring their life cover so that they have a lump sum to settle outstanding debt with an income paid to support the family.
“For many people the idea of a large lump sum makes them uncomfortable, as if they are worth more dead than alive. By structuring the cover as an income, it feels more realistic,” says Malan, who adds that this income also has the advantage that it cannot form part of a new marriage if the surviving spouse remarries.
It also removes any worry about the lump sum being poorly invested or misused.