So you thought you read the small print…
Just when you thought it was safe to sign a form without reading the reams and reams of fine print… along comes some new ways you get shafted. Here are some of the things to look out for, or ask your banker or advisor (in writing!)
Surety: You know that endowment you signed over (ceded) to the bank yonks ago, even 25 years ago? You know, the one for your little first home, long since sold… You’d have thought that because the ‘debt’ is no longer there, then the endowment ends too, right? Not so fast. If you’ve been a nice loyal customer and still have a bank account with the bank, maybe even the business has too – then it is highly likely that the surety will be retained for ANY debt or liability out there. My recommendation? If you have ceded ANY kind of policy for a debt or liability, get it removed as soon as the debt is over. If the bank refuses? Move! It is much easier than it used to be, any good bank will make sure your debits are changed themselves, saving you the hassle.
Cession: If you are required to cede a life policy, speak to your advisor first. A partial cession or a fragmented product might be a better alternative to signing over millions more than you need to. Another reason to be be cautious when you do this is that it will dramatically reduce the short term liquidity for your beneficiaries – because the ‘financial institution’ will take their sweet time to settle the debt, then give the remnants to the estate – adding insult to injury – now adding to the executor’s fees. Once ceded, it can be very difficult to get back.
Directors: You think you’ve got limited liability because you belong to a LTD company, right? Maybe not. If the company has any ‘facility’ with the bank – say a temporary overdraft in case you need it – then you have probably signed personal surety for the liability. If your bank has been really sneaky then it might be unlimited, in other words for the whole amount if any of the other directors can’t pony up. Like the fine young cannibals we have come to expect, they often pounce when one of the directors dies and mop up as much of the cash and surety lying around they can before other creditors have even received the death notification. My recommendation? Get a copy of the contract and read the fineprint or get your accountant, lawyer or financial advisor to decipher it for you.
Life policies: Nasties can lurk all over the place in your life policies, and not all of it will be in your policy document. That expensive ‘income protection’ or ‘sickness benefit’ policy is one place where you can get a rude awakening. Yes, I know you’ve got that special ‘professional’ status, but will you be paid out if you bring in a locum, or temporary help? Is your passive income taken into consideration (even though you won’t be filling up your pipeline for the future?) Are they taking investment or rental income into account when they measure your income? How comprehensive are their benefits? – this can vary enormously. At the top of the range more than 300 conditions are covered, the bottom of the range around 70. Might you be forced to undergo ‘remedial surgery’ or rehabilitation, before they pay you out? Might you be compelled to undergo ‘retraining’ for another occupation so they don’t have to pay you out? Recommendation : These benefits are expensive, and often subjective. Know what you’re getting and what not.
Change of lifestyle/occupation etc: If you start smoking; start to travel for work – and not necessarily dodgy countries either; change your occupation; engage in a ‘dangerous’ hobby like scuba; start spending much more time in your car – you probably need to inform your insurance provider. This is over and above full disclosure at the time of underwriting. Non-disclosure is still one of the biggest causes of claim ‘repudiation’.
Golden handcuffs: Understanding the ins and outs of the various loyalty programs, paybacks, bonuses etc is increasingly difficult. The golden rule is ‘There is no such thing as a free lunch’. If you want to do a comparison between ANY products – short term, life, bank accounts – try and get an apples for apples comparison without the frills, smoke and mirrors. What is the cost of the loyalty card? (This can range from free to R200 or R2000 per annum). What will it cost you to get ‘points’ on your loyalty card over and above this? Before you tie yourself into a ‘payback’ 15 years or more in the future, be very sure of the RETURN ON INVESTMENT, and the potential that you could in fact get nothing.
Author Dawn Ridler