The risk of disability
Like many of my clients out there, I always used to think that disability cover was a ‘nice-to-have’ grudge purchase until I came into the industry and face to face with claims. I couldn’t be more wrong. After life cover for minor dependants, (spice can go out and get a job), it is actually top of the risk list. Somehow it’s okay to spend thousands on comprehensive cover on a car, but if you happen to be in that car that is ‘written off’ there is a good chance you will be in need of as much panel beating as the car! Okay, so maybe it’s politically incorrect to joke about this sort of thing, but it’s about time someone blew away the smoke and obfuscation (yes, I had to spellcheck that one) surrounding temporary and permanent disability.
It’s catch 22. Interest rates are going up, disposable incomes aren’t keeping up, and we get slammed with a double digit household contents insurance premium increase. Is there fat there that you can get rid of? Most of us in RSA have been victims of housebreaking at one time or another. When it came to claims, more often than not, don’t have our expectations met. Whole industries have popped up in support of this ‘light fingered’ ethos that we all have to live with. Alarms, electric fences, insurance replacement companies, armed response, neighbourhood watch, boomed suburbs etc.
Aren’t estate plans for the elite?
Doing even the simplest estate plan seems too much of a morbid undertaking for many of my clients – so can it make any difference anyway – should you really bother?
We’ve all driven past auction boards declaring ‘insolvent estate’ – do you know what that really means? It isn’t that the dear departed was bankrupt, maybe not even close, but that there was insufficient CASH in the estate to pay SARS, the master, the executor and any outstanding debts. If all the value in the estate is tied up in an ‘immovable assets’ like property or company shares then the executor may have no option but to ‘create liquidity’, especially if a beneficiary isn’t willing to ‘pony up’ the amount from a life policy. A simple estate plan will uncover this.Community of Property estates can be landed with DOUBLE executors fees unless the fees are made negotiable (by removing banks/lawyers from the automatically becoming the executor and making it negotiable at the time by a family member).
Beautiful, fragile and difficult
GREAT EXPECTATIONS – and how to manage them
In any interaction with a professional – doctor, lawyer, financial advisor, there is the expectation that they will be able solve your problem. As tempting as it might be to be sucked in by those promises, not managing your expectations will lead to heartache all round. With markets running at an all-time high, the man on the street is piling into the market while experienced analysts and investors are selling out. Look at the ALSI over the last 5 years and you’ll see what I mean. The market has gone from 21290 to 52038, with a couple of small corrections, which bounded back within months. How do you prepare for a potential ‘correction’?
Analysis – It pays to have a closer look.
You aren’t going to know if there are friends or foes lurking in your Life policies or investment portfolios until you have an independent professional have a good look at them for you. Here are some of the things you should be looking for:-
- Unsustainable premium increases every year, making them unaffordable when you need them most: In order to bring you the cheapest premium ‘today’ – or beat out the competition and persuade you to switch your policies – advisors will often use the ‘age rated premium’. Basically for the first five to seven years of your policy you pay a lower premium, and it rises exponentially thereafter. That is usually the trigger to switch the policy to another provider. Easy when you’re healthy – but if you’re not it might be impossible. Then what? You cut back on your cover – usually. Recommendation: Get a copy of your policy and graph the premium increases, or get your advisor to do it for you.
- Severity based payouts that will pay you 5-25% of the sum you thought you covered: Severe illness or dread disease policies are expensive. That is because there is a one in five chance of you having to collect on it before retirement, and the odds increase substantially thereafter. One way the providers bring down the premium is by using a ‘severity based’ product. Using various medical standards they will rate the severity of the illness – like cancer Stages 1-4 for example. If your cancer is caught at stage one you’d be paid out 25% typically and you can come back for more “when it gets worse”. As long as you are aware of this, that’s fine, but make sure you read the small print – or get your advisor to clarify it for you.
New spinach varieties that have multi-coloured stems can be used in the flower garden and not just the veg garden
BUY AND SELL ASSURANCE – protecting your equity and legacy
A shareholder’s agreement in a private company will address how shares in the company should be bought and sold on the death of one of the shareholders, more often than not it will give the other shareholders the right of first refusal to buy the shares. If the shareholders do not have ready liquidity in order to buy the shares from the estate here are some of the potential consequences: