The Ins & Outs Of Long Term Insurance In South Africa
Life is full of uncertainties, and this is why long term insurance is important—whether it’s a serious illness, a car accident, a fire, or a break-in, these unexpected events can have a devastating impact on your financial stability. It acts as a crucial safety net, helping you navigate these challenges without suffering life-altering financial setbacks. Far from being an optional expense, long term insurance is a vital component of your overall financial security. Especially in times when cutting back seems necessary, maintaining the right insurance coverage is essential. In this blog, we’ll explore the long term insurance meaning, the Long Term Insurance Act, and why long term insurance is so important.
What Is Long Term Insurance
Long term insurance is insurance that provides financial protection against significant life events such as death, retirement, or disability. It is safeguarded by the ombudsman for long term insurance and by paying a monthly premium to a long term insurance company over an extended period, you ensure a safety net for yourself and your loved ones. The key difference between short and long term insurance is that short-term insurance covers immediate, tangible risks over a short period, while long term insurance products provide financial protection against significant life events over an extended period or lifetime. Let’s unpack some examples of long term insurance and how they can benefit you.
Long Term Insurance: Life Insurance
Life insurance offers protection against the loss of income due to death. The primary purpose is to provide financial security for your family. Upon your death, your beneficiaries receive a lump sum payment, which is tax-free and guided by your will. This payout can be used for:
- Regular living expenses
- Paying off outstanding debts
- Covering funeral costs
The goal of life insurance is to ensure that your loved ones are not left financially burdened after you pass away.
Long Term Insurance: Medical Insurance
Medical insurance, often referred to as medical aid, helps cover healthcare costs. By making monthly payments to your service provider, you secure financial support for various health services. Medical insurance can:
- Provide access to necessary health services
- Help defray costs associated with medical care
- Offer services directly or through associated suppliers
This type of insurance ensures that you and your family have access to the medical care you need without the stress of unexpected expenses.
Long Term Insurance: Disability Cover
Disability cover is crucial if you suffer an injury or illness that prevents you from working. Whether the disability is partial, temporary, or permanent, this insurance provides financial support to help maintain your standard of living. The payout from disability cover can be used to:
- Cover living expenses
- Adjust your car or home to accommodate your disability
This type of insurance ensures that you and your family can cope with the financial impact of a disability, allowing you to focus on recovery without the added stress of financial strain.
Why Long Term Insurance Matters
Long term insurance offers peace of mind by providing financial security against life’s uncertainties. It is governed by the Long Term Insurance Act and it ensures that you and your family are protected from the financial impact of significant life events, helping you maintain your standard of living and achieve long term financial stability.
Investing in long term insurance is a proactive step towards securing your financial future. To understand the difference between short term and long term insurance you need to know which products to choose. By understanding and choosing the right insurance products, you can create a safety net that supports you and your loved ones through life’s unpredictable moments.
Tips To Lower Your Long Insurance Costs
While insurance is essential, it doesn’t have to break the bank. Here are some practical tips to help you get the most out of your insurance without overspending:
Shop Around for the Best Deals: Insurance policies vary widely in price and coverage. By comparing different insurers, you can find a plan that suits your needs without unnecessary extras. Remember, simple plans with basic coverage are often more affordable than comprehensive ones with added extras.
Combine Policies: Many insurers offer discounts when you insure multiple assets, such as your home and car, with them. This bundling can lead to significant savings.
Long Term Insurance Savings: Home Insurance
Insure the Structure, Not the Property: Focus on insuring the structure of your home rather than the entire property. This targeted coverage can be more cost-effective.
Enhance Home Security: Installing security systems, trellis doors, or smoke alarms can lower your premiums. These measures reduce the risk for the insurer, which can reflect lower costs for you.
Non-Smoking Household: If your household is smoke-free, let your insurer know. Non-smokers have a lower risk of house fires, which can lead to reduced premiums.
Long Term Insurance Savings: Car Insurance
Evaluate Your Car’s Value: If you have an older car with a low market value, consider dropping certain coverages that may no longer be worth the cost.
Utilise Discounts and Safety Features: Ensure all eligible discounts are applied to your policy. Features like airbags, secure parking, and anti-hijacking systems can enhance safety and reduce premiums.
Choose Sensible Vehicles: High-performance, expensive cars attract higher insurance premiums. Opt for a vehicle that is affordable to insure.
Is Long Term Care Insurance Tax Deductible
Planning for the future involves considering the cost of long term care, which can be substantial. Luckily, the South African Revenue Service (SARS) offers some relief by allowing certain long term care insurance premiums to be deductible on your tax return. But how does this work?
Can You Deduct Long Term Insurance Premiums?
Yes, you can deduct long term care insurance premiums on your tax return, but there are a few conditions:
- Age Matters: The amount you can deduct depends on your age. The older you are, the higher the deduction limit.
- Itemise Deductions: You must itemise your deductions on your tax return to qualify.
- AGI Threshold: Your total unreimbursed medical expenses, including long term care premiums, must exceed 7.5% of your adjusted gross income (AGI).
Understanding The Limits
SARS sets specific limits on the amount of long term care insurance premiums you can deduct, and these limits are updated annually. Here are the limits for 2023 and 2024:
| Age | 2023 Limit | 2024 Limit |
| 40 or under | R9,000 | R9,200 |
| 41-50 | R16,800 | R17,000 |
| 51-60 | R33,600 | R34,000 |
| 61-70 | R89,400 | R90,500 |
| 71 or older | R111,600 | R113,000 |
For example, if you are 55 years old, the maximum amount of long term care insurance premiums you can deduct in 2024 is R34,000.
How To Deduct Long Term Insurance Premiums
To see if you can deduct your premiums, follow these steps:
- Add Up All Long Term Care Expenses: This includes premiums and any other qualified long term care expenses.
- Determine Your Deductible Amount Based on Age: Use the SARS limits to find out how much of your premiums you can potentially deduct.
- Compare to AGI Threshold: Calculate 7.5% of your AGI. Only the expenses that exceed this threshold can be deducted.
For instance, if your AGI is R500,000, the threshold is R37,500 (7.5% of R500,000). If your total long term care expenses, including premiums, amount to R50,000, you can deduct the amount that exceeds R37,500, which is R12,500.
Special Rules for the Self-Employed
If you are self-employed, you might be able to deduct your long term care insurance premiums without itemising. This deduction can be taken directly on your tax return, which reduces your AGI and can make you eligible for other tax benefits. However, you need to meet certain criteria, such as reporting a net profit and not being covered by an employer health plan.
What Expenses Are Covered by Long Term Insurance?
Long term insurance in South Africa can cover a wide range of services, including nursing home care, resident care facilities, alternative care facilities, adult day care, short-term hospice care, respite care, and temporary care.
For home healthcare, it can cover, physical therapy, occupational therapy, rehabilitation, professional nursing care, speech therapy, and help with day-to-day activities.
Protect Your Future With National Debt Advisors
Long term insurance plays a crucial role in protecting you and your loved ones from life’s unforeseen challenges. Whether it’s life insurance, medical coverage, or disability protection, these policies ensure that you can focus on reducing your debt without the fear of unexpected expenses derailing your progress. By integrating insurance into your financial strategy, you’re taking a proactive step towards a more secure and stable future.
This is why, at National Debt Advisors, we encourage you to take control of your financial future today. Start by evaluating your current insurance needs in the context of your debt management plan. Understanding how long term insurance complements your efforts to pay off debt will help you make informed decisions that benefit both your short-term and long term financial goals. Our expert advisors are here to guide you through this process, helping you strike the right balance between maintaining necessary coverage with the best long term insurance plans and continuing to work towards financial freedom.
At National Debt Advisors, we believe that peace of mind is an essential part of your journey to financial stability. That’s why we’re committed to providing you with the tools and support you need to manage both your debt and your insurance needs effectively. Don’t let uncertainty hold you back—contact National Debt Advisors today, and let’s work together to build a secure financial future for you and your family.
