How to avoid the impact of premature death

Not all of us will live to be one hundred years old. It is therefore important to consider that death is an integral part of life. This is why it is a good idea to think about the financial protection of your loved ones and your company. Taking out life insurance, for example, can in any case prevent them from suffering a financial disaster.

Not immortal

While we are familiar with the concept of the increasing ageing of the population, not everyone knows that, assuming constant mortality, 10% of Belgians never reach retirement age. The 2017 figures show that 16,202 Belgians died at an age between 20 and 64. It is therefore not so surprising to have several acquaintances (family members, friends, neighbours, colleagues, etc.) who have died before the age of 65.

Impact of death on the family/company

These figures provide food for thought. The death of a head of household reduces household income significantly, while a number of financial obligations continue to exist. This sometimes has a heavy impact on the household budget. In your outstanding balance insurance, check that you and your spouse are insured at 100%: if one of you should die, the mortgage loan would then be paid in full. Hopefully you are, because all fixed costs (heating, electricity, water, liability and all other insurance policies) would remain due. Not to mention your car loan and children's education costs. It is therefore worth asking yourself if your loved ones can maintain the same standard of living when you are no longer there. By doing this exercise in advance, you will at least know what to expect.

A solution for everyone

Consult your insurance expert, consult a professional and check what insurance you already have. Some people are unaware, for example, that "life insurance" is the generic term for insurance related to the life or death of an insured person. We often take outstanding balance insurance for granted, but we do not consider death coverage which guarantees our family's standard of living to be essential. This is illogical. While we think about insuring our cars, furniture, smartphones, etc., we do not really think about insuring our own lives, in order to allow our loved ones to continue their peaceful existence once we are no longer around.

Suppose you rent a house with a partner who dies. All costs related to the rent then become your responsibility. Life insurance would be very useful and would save you a lot of hassle. The same applies if your partner who works from home suddenly dies: as a surviving spouse, you would have to cover additional expenses, such as the nursery, etc. If you are divorced under a maintenance allowance scheme, death insurance for both spouses can guarantee alimony and, possibly, the education costs of your children. Thus, grandparents who wish to favour their grandchildren rather than their children can finance their studies with life insurance, for example.

Inheritance

In addition, death insurance is also useful for paying high inheritance taxes. This tax still amounts to 80% in Wallonia and Brussels for the highest income bracket, and 55% in Flanders. Bear in mind that legal cohabitants inherit only the usufruct of the dwelling and its contents, while de facto cohabitants inherit nothing at all. However, a death insurance policy allows you to transfer movable property to the surviving spouse. Stepchildren in a blended family inherit nothing; for them too, death insurance provides a solution.

Temporary protection

There are two types of (compatible) term death insurance providing for the payment of a capital by the insurer in the event of death before a given date. The first is life insurance (branch 21) with constantcapital.Some insurers offer two options: the payment of the agreed lump sum to the chosen beneficiary in the event of death before the end date of the contract (on a single life); and insurance on two lives, the lump sum being allocated to the surviving spouse. In addition, there is term death insurance "with decreasingcapital", with the death benefit decreasing gradually as the contract progresses. Outstanding balance insurance, often used to cover a mortgage loan, is an example.

Lifelong protection   

If you purchase life insurance with a constantcapital, the insurer will pay you the capital provided for in the policy at the time of death, if it occurs during the insured period. This insurance is a good complement to group insurance with an employer, for example. The latter is often not enough to guarantee your family's standard of living in the event of premature death. It is advisable to ask your employer how much your group insurance coverage actually amounts to.

When you take out a life insurance policy, you determine the capital to be insured, as well as the duration of your coverage and the beneficiaries according to your specific family situation. Premiums vary depending on the amount to be insured and the duration of the contract. They are tax deductible under certain conditions. There is also the option of additional capital in the event of accidental death, and some insurers offer you a discount as an organ donor. An alternative to death insurance is supplementary death insurance as part of pension insurance.

Self-employed people

If you are a manager, it is certainly necessary to think in time about the short-term and long-term impact of an unexpected death. For example, if you have created your own SME or are self-employed, the impact on your business is significant. You have been involved in projects and have signed contracts. It may be appropriate to ask yourself ahead of time who would be responsible in the event of non-compliance with your obligations and what the impact would be on your loved ones.

As a self-employed person, it is important to guarantee the financial continuity of your company. A good way to do this is through death insurance which covers fixed costs and can be included in an IPA or a PSPS. The company which takes out this life insurance on behalf of the manager covers its arrears in the event of premature death. The premiums are tax deductible and are paid by the company, which remains the beneficiary of any compensation. Ensure sufficient coverage, after deduction of taxes on the amount paid.

Additional options are the payment of a fixed amount in the event of accidental death or a payment related or not to the reimbursement of a loan (cash credit, mortgage loan, etc.).

Associates

If you have a company, keep in mind that in the event of death of a partner, the people who inherit his or her shares may not have the same vision of the company. Therefore, you should sign a shareholders' agreement before a notary stating that the partners have a pre-emptive right to the deceased partner's shares. Each partner should also take out a death insurance policy on the other partners' lives for which they are the beneficiaries. In this way, the partners can purchase the paid-up shares with the insured capital, thus guaranteeing the continuity of the company.

Expert advice  

Depending on your situation, there are ways to avoid a financial disaster for your loved ones. So be informed in advance, but above all, take good care of yourself and lead a healthy life: you will therefore reduce the risk of premature death.

For more information on death coverage, ask your insurance expert for advice.