Last Will : Why Indemnity Cover is a Better Choice than Life Insurance, and why you should not be ignoring it

When planning your estate in South Africa, one of the biggest concerns is how to cover the costs associated with estate administration. Many people automatically think of life insurance as the solution, but indemnity cover offers distinct advantages that often make it a better choice linked to your last will. Understanding these benefits can help you protect your estate and ensure your loved ones are not burdened with unexpected fees.

What Are Estate-Related Fees in South Africa?

Estate-related fees include costs such as executor fees, estate duty, conveyancing fees, and other administrative expenses that arise when an estate is wound up after death from your last will. These fees can quickly add up, sometimes amounting to a significant portion of the estate’s value. Without proper cover, beneficiaries may face delays or financial strain while waiting for the estate to be settled.

How Life Insurance Covers Estate Fees

Life insurance policies pay out a lump sum upon the policyholder’s death. This payout can be used to cover estate fees, debts, or provide financial support to beneficiaries. While this sounds straightforward, life insurance has limitations when it comes to estate fees:

• The payout is often included in the estate, which means it may be subject to estate duty.

• The lump sum may not be sufficient to cover all fees if the estate is large or complex.

• Beneficiaries may have to wait for the estate to be finalized before accessing funds.

• Premiums can be expensive, especially for older policyholders or those with health issues.

  
  

Why Indemnity Cover Works Better for Estate Fees

Indemnity cover is designed specifically to cover estate-related costs without being part of the estate itself and can be linked to your last will. Here’s why it often makes more sense than life insurance for this purpose:

1. Direct Payment of Estate Fees

Indemnity cover pays the estate fees directly derived from your last will wishes to the relevant parties, such as the Master of the High Court or the executor. This means the estate does not have to wait for funds to be released, speeding up the administration process.

2. Does Not Form Part of the Estate

Because indemnity cover is not included in the estate value, it does not increase the estate duty payable. This can save significant amounts in taxes, especially for estates valued above the estate duty threshold. Indemnity cover must be structured correctly with your Last will.

3. Flexible and Transparent Costs

Indemnity cover is tailored to cover specific fees related to estate administration. This makes it easier to budget and avoid surprises. Life insurance payouts can be unpredictable and may not match the actual costs.

4. Cost-Effective Premiums

Since indemnity cover focuses solely on estate fees, premiums are often lower than life insurance policies with broader coverage. This makes it an affordable option for many South African families.

5. Peace of Mind for Beneficiaries

Knowing that estate fees are covered separately means beneficiaries receive their inheritance faster and without deductions for fees from the Last Will. This reduces stress during an already difficult time.

Practical Example: Comparing Costs

Consider an estate valued upon your last will execution is R5 million. Estate administration fees and duties could easily reach R500,000. A life insurance policy would need to pay out at least this amount, but since the payout is part of the estate, estate duty may apply, reducing the net amount available.

With indemnity cover, the R500,000 is paid directly to cover fees, leaving the full estate value intact for beneficiaries. This difference can mean tens of thousands of rand saved in taxes and fees only of a choice made to add Indemnity cover to your last will instead of Life insurance.

Consulting with Financial Expert who understands South African estate law can help you make the best choice. Contact us today to put you in contact with a financial expert that can also discuss how to link indemnity cover to your last will.