Should you update your life policy? Herewith some further information that may assist you...
Older Type Life Policies
These policies had a compulsory savings element added to them, which was not always transparent.
It was difficult to see just what the cost of the risk and your savings portion were.
Upon claiming, the cash value is not paid along with any benefit value.
In order to access the cash value you had to either take loan or surrender the policy.
Any early surrender incurs huge penalties and you loose a great deal of your fund value.
So what is the benefit of these policies? Apart from the obvious benefit that life insurance offers, they also address the vital need for retirement savings. For all of us, a comfortable retirement with the same living standards as when we were earning an income, is a major savings goal. And these types of policies help in creating the capital necessary to generate that income. They are a form of disciplined saving to build up your retirement capital.
Many people do not feel the need for high amounts of life cover at retirement and therefore stop the policies and realise the cash value, to use for income purposes. But there are consequences you need to be aware of;
There could still be a penalty for early surrender, although it should not be too onerous.
As life insurance proceeds carry an important role in providing tax-free capital for your surviving spouse's pension, stopping them can be a major concern.
Life insurance also plays a critical role in inheritance and estate duty planning. It is the only real way to instantly provide money for these two concerns.
The cost of life cover in later years is expensive. One benefit of the cash value lies in the fact that it can offset the cost of your cover. As the cash value builds up, the amount of risk cover reduces and more of your premium is invested into the cash fund.
The cash value can provide the necessary security when you apply for loans. If you stop your policy, you may have to encumber other assets to provide the security you need.
All told, your decision to change to a new generation policy must be carefully analysed - preferably using a professional financial adviser.
There are many attractive elements offered by the new type of life policies. As long as your health has not changed and you do a comprehensive analysis before you switch then there can be major benefits in changing your policies.
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