When it comes to estate planning, having a life insurance policy is an integral part in ensuring that loved ones are taken care of or have enough money to cover expenses related to one’s death.

It is for this reason that Deon Graveney, a financial Advisor at JN Life Insurance, is encouraging the integration of a life insurance policy into personal financial planning, and that it should complement a will, as it can offset the costs associated with settling an estate.

A guest speaker at a recent meeting of the Rotary Club of Trafalgar New Heights at CRU Bar and Kitchen in St Andrew, Graveney explored the theme ‘Life Insurance as a Tool for Generational Wealth’. She informed the audience that, especially for young professionals, life insurance provides liquid cash for estates and, therefore, can prevent the forced sale of assets to pay creditors and cover other final expenses.

“When you die, the expenses can add up. For example, I recall a situation where one of my clients passed away and the expenses associated with death, such as the taxes, executor’s fees, commissions, stamp duties, court fees, funeral expenses and other costs added up to approximately 35 per cent of the estate,” she said.

“It’s worse if the person dies intestate, which means they died without leaving a will. Even if the person dies leaving a will, there are the legal costs to probate the will. Your creditors also have to be paid first before the assets of the estate are distributed to your heirs,” Graveney further advised.

She pointed out that the inability to pay a loved one’s creditors after his or her death can stymie efforts to build generational wealth because there may not be anything left to pass on to the heirs.

“If, however, you have life insurance, your estate or beneficiaries will get that lump sum to help you settle the debts. Life Insurance should form a part of your financial planning arsenal because it is an essential part of creating generational wealth,” she informed.

The financial advisor emphasised that in addition to having life insurance, an important element of creating intergenerational wealth is making a will.

“Even if you have only a pen or a laptop, or flat screen TV, make a will,” she emphasised. “Estate planning is going to be done one way or another. Either you are going to do it, or the Administrator General is going to do it. If you die intestate, your estate can be tied up at the Administrator General for years owing to the process of ‘administrating’ the estate, and to the backlog,”  Graveney outlined.

She added, “It takes long because they have to gazette it, meaning it has to be published in a newspaper of record advising anyone with a claim to the estate to come forward. They will wait for a specifically required period for someone to come forward, after which it will be administered. This could take years.”

When someone dies leaving a will, Graveney said, they exercise control, for the most part, in how the estate is administered. Still, she advises that the individual leaving the will must be intentional has to “die tidily”.

“When you die without a will, you die untidily because you leave a lot for your loved ones to ‘clean up,’ and, at worst, your loved ones may be disinherited or, at best, your legacy and assets may not be passed on to whom you had intended. However, when you die with a will in place, your heirs are able to go through the process much quicker. A part of secure financial planning to ensure generational wealth, also, is setting up a trust. A trust is important in protecting the assets of an estate from creditors, and even for the beneficiaries of the trust – because children “get giddy with millions of dollars” and may squander or lose it in a short space of time. To mitigate that, you set up a trust to distribute the assets in tranches,” she affirmed.

She emphasised that by maintaining a life insurance policy, one can preserve the wealth contained in their estate for future generations.

“One of the goals of estate planning is to ensure survivors have adequate income for even the adjustment period after a breadwinner has passed; to ensure that they have funds for all their immediate cash needs until they can get back on their feet. The lump sum from an insurance policy will ensure this and, in addition, the preservation and transfer of assets to the heirs because it provides liquidity to pay for estate expenses,” she advised.

“If there is no liquidity, there may be forced-sale of your assets because they need money to clear off your expenses. A house that is valued at $50 million, may actually be sold for $20 million because the cash is urgently needed to pay creditors and other last expenses. Life insurance can provide liquidity for your estate to ensure you do not have to do that,” she said.

Graveney explained that there were various insurance products that would ensure adequate lumpsum payments to assist with final expenses.

“Products such as Whole Life or Universal Life which has an investment portion tied to inflation is a good one to have because the coverage would have maintained some value at future date of death. Also, Term Life insurance is ideal, especially for young professionals just starting out who may have need [of] large amounts of insurance coverage but are not yet making a lot of money because Term Insurance is pretty inexpensive” she said, pointing to the young medical practitioners, lawyers and other professionals in the audience.

“You purchase it (Term Life) for a period or term, as the name suggests, and it guarantees a lump sum if you should die within that period.”

She revealed that JN Life Insurance developed “the JN Life Vest specifically for this purpose—with an investment component so it’s not a sinking fund, and you’re able to extend the term or convert the policy to a whole life before the term expires.

“Considering life insurance is good because it is one of the tools you can use to build generational wealth and it will ensure stability for your loved ones when you pass,” she added.