When it comes to protecting your wealth and transferring it to the next generation, life cover is an essential component of every wealth and succession plan.
As a form of insurance, life cover really comes into its own on the death of the life cover policy holder, paying out a lump sum to the beneficiaries and thereby ensuring that their families and/or businesses are protected when they are no longer alive to support them.
Life cover is by no means a new offering. The concept actually dates as far back as Ancient Rome – specifically to 100 B.C. when Roman Military leader Caius Marius is reported to have created a ‘burial club’ for his troops. If a soldier died unexpectedly, the members of the club would pay for the funeral. In 1688, the modern concept of insurance was born in London at the Edward Lloyd’s Coffee House, the meeting place for ship captains, owners and merchants who were looking for shipping news and insurance. Then, in 1706, the Amicable Society for a Perpetual Assurance Office became the first company to offer life insurance. In 1807, the company changed the way it structured its premiums and started calculating its fees based on age, occupation and health.
Life cover in a nutshell
Over the past 200 years, life cover has evolved and now forms an integral part of any modern insurance offering. There are typically two types of life cover available, term life insurance and whole life insurance. Term life insurance is a pure risk offering and gives the policyholder cover at a fixed rate over a specified period of time. If you pass away during this time, your family or business will be paid out a predetermined lump sum. Whole life insurance offers an investment component to the cover, thereby ensuring that investors receive a lump sum if they choose to cancel the policy before their death. However, if the policyholder dies, then their beneficiaries are paid the insured sum.
How does it work?
In order to determine what premiums to charge an individual, insurance companies assess the lifestyle risk of the policyholders. Factors that impact insurance premiums, especially those for term-life insurance, include age, health, smoking, profession and lifestyle choices. Pretty much the same criteria that The Amicable Society for a Perpetual Assurance Office used back in 1807. When it comes to taking out life cover, a few exclusions may exist. Policies may be deemed null and void if the policyholder commits suicide within a stipulated period after buying the policy. Also, any misrepresentations about the insured’s status may result in non-payment. To prevent any misunderstandings, policyholders are typically required to have a medical check–up before a policy is issued.
The bottom line
When it comes to life insurance, many people argue that it is an unnecessary expense. However, Paul de Waal, Carrick Senior Wealth Specialist, says: “Whenever I’ve gone to deliver a death claim, no one has ever come back and said, you know, I wish my partner had invested this money somewhere else.”
The reality is that life cover guarantees that the policyholder’s family or business remains financially sound in the event of their death. This gives the policyholder peace of mind that they have made provision for the future, says de Waal, who adds: “Insurance is the foundation of your financial plan.”
The value for Africa’s wealthy
Over and above the life cover aspects, there are also additional benefits to holding this insurance. Notably, life cover is one of the best ways to preserve family wealth in a tax-effective way. It is for this reason that Carrick Wealth has partnered with a leading international company to offer its high-net-worth (HNW) African clients one of the most progressive and innovative whole life cover solutions available, giving wealthy African clients the luxury of planning their financial legacy on their terms.
Look out for more in–depth insights into Carrick’s High Value Life Insurance and the advantages this holds for HNW Africans in our upcoming life cover series.