Know where you stand – reduce the stress
Seven years on from the credit crunch and the economy still seems to be limping along. It’s the new normal. Jobs that were lost, are probably gone forever, unemployment is dire and the only real growth is coming from SME’s. Yes, there’s opportunity there, but in the meantime family and budgets alike are under pressure. Interest rates are starting to climb again after a long hiatus, and there is every indication that there are plenty more to come – so for anyone with debt that is bad news.
Enough of the misery. Much of the stress created by uncertain finances is fear of the unknown. There is an automatic assumption that if a job is lost, or there is another calamity, the world is going to fall apart, and you are going to be out on the street. Mostly that panic will pass, but it has a nasty habit of interrupting your beauty sleep.
So how can you keep this stress at bay? Here’s a start:
Medical aid premiums – out of control – what to do
It’s coming to the time of the year where you should be reviewing your medical aid plans with a view to changing from the first of January. The inflation increases of this core part of many of our budgets continues to spiral out of control. Every time an increase comes through that is above inflation, then the problem compounds into the future. Every year thousands of South Africans ‘buy down’ on their schemes – the costs are just unaffordable and unsustainable. So how do you decide what plan to take, and what provider to use?
Medical aids are hamstrung by regulations, and cannot refuse membership to anyone, no matter their health – this is quite different to the ‘life’ industry. The only penalties they can impose is a 3 month claim restriction, 12 month condition specific exclusion and late joiner penalties. In my experience they will use these restrictions almost without exception, making changing providers a nightmare for an individual who is not on a compulsory group scheme. You have to pretty fed-up with your current provider to go down this route – I know, I did it.
August 2014 ALSI – crawling sideways
Where is it going?
One of my favourite quotes is – ‘The bulls win; The bears win; It’s the pigs that lose’. I think this is a great time to revisit that quote. Everyone is on tenterhooks wondering which way the stock market is going to turn, not wanting to leave any ‘money on the table’ by locking in profits too soon. Of course that produces the real risk of missing out, and losing a chunk of those gains. What rises like a feather often drops like a stone.
As a financial advisor, I make investment recommendations based, primarily, on the length of time an investment is going to run. There are half a dozen variable that go into the recommendation of course including risk profile, age, wealth, income requirements etc. At the end of the day though, having made a recommendation in ‘Unit trust’/Collective investment (CI), I let it work its magic, watching in the background to make sure it remains ‘relevant’. I don’t take the kudos when it outperforms the expectations. The market did that, not me. The same applies when it under-performs (but is likely to lead to a fund switch if it hasn’t kept up with its peers.
The low-down on accident cover
Buyer be aware. Your advisor should be able to tell you what the priorities are for your rand. Nobody has a limitless budget to spend on their ‘financial portfolio’ in the broadest sense of the word, and ‘impulse buys’ like this can be tying up valuable spend. There is no such thing as one size fits all, you need someone to help you allocate your money over the “health care, short term insurance, life/disability cover, retirement savings and investments” spectrum – without a vested interest. You need to get ‘independent’ advice – even if you have to pay for it because your broker doesn’t have access to all the various products and platforms.
During the course of the analysis of my client’s portfolios I often come across this ‘accident’ cover. Should this be added to the life cover provision – or is it cheap and nasty and should be junked and the premium reallocated? At certain times during your lifecycle, the chances of you dying in an accident rather than from natural causes is higher than when you are older – specifically the 20’s, and some of the 30’s – so far so good. It boils down to putting it in perspective.
When should you change your life policies?
Despite every effort by ASISA and other bodies, life policies seldom seem to have a life span of 3-4 years before they are swapped out to another provider – when is it valid, and when is it not?
Price: Over the last ten years premiums for life cover have become more competitive, and the providers will not automatically give you the benefit of the cheaper price. If the policy has been around since the 90’s then the ‘saving’ can be massive. Not all providers will allow an advisor to redo the cover on the same platform, and there is likely to be no remuneration. As an independent provider I continually make sure my client gets the best policy they can afford, tailored to their changing needs. If I don’t do that, someone else will.
Warning: If your advisor or a new advisor recommends that you ‘change’ your policy, ask these questions:
DISABILITY COVER – DECODING THE SMOKE AND MIRRORS
For anyone of working age, disability benefits or cover are not a nice to have, they are a ‘have to have’ – but make sure you’re not swallowing a sugar-coated bitter pill that is going to give you an ulcer down the line. It isn’t the easiest benefit to understand, and many providers don’t help with all sorts of acronyms, abbreviations and BS, so let’s do some decoding.
In the old days you used to get ‘capital disability’ cover, where you had to be so severely disabled as to be a few months away from death before you were paid out. If they could push you behind a desk, you ‘could work’. This shoddy cover gave the whole benefit a bad name, and fortunately things have improved a whole bunch – but be aware – these inferior products still lurk around in some of the older ‘group benefits’ provided by companies.
There are 2 types of disability benefits – lumpsum and income protection, each of which has its merits.