Life insurance isn’t exactly the most exciting topic, is it?
We diligently pay our premiums every month, and if any frustration creeps in, we remind ourselves that it’s all for the financial security of our loved ones.
At its core, life insurance is pretty straightforward:
- You pay a monthly premium.
- In return, your insurer guarantees a lump-sum payout to your chosen beneficiaries when you pass away.
As long as you stick to your side of the deal—
- Paying your premiums on time
- Being honest when taking out your policy
—your family will receive the intended payout. Simple, right?
Is Life Insurance Taxed in South Africa?
If you have a sizable life insurance policy, you might be wondering if the South African Revenue Service (SARS) is eyeing a slice of it. The big question is: Do life insurance payouts get taxed?
The answer? It depends on who receives the money.
Key Facts You Need to Know:
- When you pass away, all your assets—including your life insurance policy—become part of your estate.
- If your life insurance payout is left to your spouse or partner, it is exempt from Estate Duty under Section 4Q of the Estate Duty Act.
- If it is left to anyone else (children, parents, or other beneficiaries), it could be subject to Estate Duty if your total estate exceeds the R3.5 million abatement.
- If the policy pays into your estate instead of directly to a beneficiary, Executor’s Fees of 3.5% (excluding VAT) may apply.
What Happens to Your Life Insurance When You Die?
According to SARS, when a taxpayer passes away, their assets are placed into a deceased estate. This includes everything from property and investments to cars, furniture, and yes—life insurance proceeds.
However, if your spouse or partner is the beneficiary, SARS cannot tax the payout—no matter how large the policy is. Even a R20 million policy can be paid out tax-free to a spouse, thanks to Section 4Q.
What If You Don’t Nominate a Beneficiary?
If you don’t specify a beneficiary, the payout automatically goes into your estate. And if your estate is worth more than R3.5 million, Estate Duty of 20% applies to anything above that threshold.
The Takeaway:
Too many assets left to your estate can push its value over the R3.5 million mark quickly—giving SARS a reason to collect. To avoid unnecessary taxation, review your beneficiary nominations and ensure your life insurance is set up efficiently.