Using life insurance to leave a legacy

2014-06-01 15:00

One way to kick-start intergenerational wealth is through the use of a life policy, writes Maya Fisher-French

What parent in the world would not like to leave a family legacy to help educate the future generations, help their offspring buy a house, start a business or create an investment for wealth creation in the family?

Craig Gradidge of Gradidge Mahura Investments says this is a very desirable financial goal among his clients, especially for many black families who are only starting asset accumulation. One way to kick-start intergenerational wealth is through the use of a life policy.

“As a parent myself, I certainly do not want my kids to walk the path I did. All the hard work and sacrifices that I made were with the aim of creating a better life for my children and my children’s children.

“However, for most, building wealth takes time, especially if you are working for an employer. And an unexpected death could derail those ambitions and plans in a moment.

“This is where life cover comes to the fore and ensures that the dream lives on,” says Gradidge.

Many parents are aware of the need for life insurance to provide an income for their family should they die – but many cancel these policies once the children leave home. By maintaining that life cover, one could leave an inheritance for future generations.

If one is taking out life cover with the view to maintaining it into retirement, it is very important to ensure you take the correct type of cover so that it remains affordable.

If you have an existing policy, there is also the option to transfer the premiums to one’s children to continue to pay once you retire. They, after all, are the ones who are going to benefit.

Life policy as a retirement fund

The idea of children paying for a parent’s life cover raises another interesting dimension – one that is perhaps more difficult to discuss culturally but certainly something worth considering.

Many South Africans are finding themselves in the “Sandwich Generation”, where they are supporting both their elderly parents and their older children.

This generation of 40- and 50- year-olds is finding it increasingly difficult to provide for their retirement while meeting family obligations such as elderly parents who do not have sufficient retirement savings and children who are studying for longer or who are unable to find work.

Taking out life insurance on a parent who you are supporting is one way to ensure that you break the cycle of the Sandwich Generation so that your children do not have to support you in retirement.

According to Liberty, a R1?million life insurance policy for a 70-year-old, female, nonsmoker would cost in the region of R1?640 a month. Assuming premium increases of 8.5% a year, she would have paid about R300?000 in premiums by the time she is 80 years old.

If you have a parent who already has a life policy in place, one could simply take over the premium payments. If, however, one is taking out a new policy, it is something that would have to be handled very sensitively – you don’t want your parent to think you want them dead.

Gradidge, who supports his mother, has taken out life insurance for her.

“The key decision to insure was based on the fact that certain liabilities and expenses would fall on my brothers and myself in the event of her passing.

“We had a very open and frank discussion before taking out the policy, and she agreed to it and was comfortable with the idea.

“We also pay for her medical cover, so she knows we want her to live for as long as possible,” says Gradidge.

It may be easier to have this discussion in light of leaving a legacy. Through taking out life cover, your parent can ensure the education and financial stability of generations to come.

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