Wealth Ecology™ FAQs

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Wealth ecology™ is the holistic analysis and management of the ‘ecosystem’ of the wealth of a family, a trust or SME to ensure an optimal balance, sustainable growth and protection of risk. It is Financial Advice revisited to make it more transparent and understandable. Ecology is the interaction between organisms and their environment. Nothing exists in isolation and a balanced ecosystem is essential in order for it to thrive. Wealth ecology™ uses this as an allegory to examine the balance between the various elements of a person’s or group’s wealth and risk portfolio in order to create and maintain the optimal balance over the natural life-cycle of the wealth ‘ecosystem’.

All those frequently asked questions on every aspect of Financial Advice from Medical Aids to estate planning are available here – and the opportunity to add your own question or submit your own comments.

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Medical Aid FAQShort Term InsuranceLife CoverDisability Cover & Income ProtectionDread Disease Cover
Can I be refused membership of a medical aid scheme?
Medical aid membership should be one of the first aspects of Financial Advice that your advisor queries. In South Africa if you want to ensure a first world class standard of care you will need to access the private hospital system which can be extortionately expensive.  In 1998 legislation was introduced prohibiting discrimination in the membership of medical aid schemes, this was enacted in 2000. Unlike Life Assurance where you can be ‘loaded’ or refused life cover due to a medical condition, you cannot be refused membership of a scheme on medical grounds. Schemes have limited leeway when it comes to new members. They can impose a 3 month general waiting period, during which you may not claim (exceptions, small print etc), and a 12 month condition specific exclusion based on underwriting like pregnancy, joint issues, menopause etc. If you have ever been found guilty of defrauding a medical aid you can be refused membership of that medical aid. It doesn’t preclude other schemes from accepting you, but most ask the question ‘have you ever been refused cover by any other scheme’ – making it highly unlikely that you will be accepted. If you are re-joining a medical aid with an outstanding savings deficit, you will be expected to repay it before you join. More info in the blog HERE.

Recommendation: Instead of paying for a full premium when you are only getting a fraction of the benefits during the 3 or 12 month waiting periods, join the cheapest plan and upgrade at the end of the year to your optimal plan.

Why not wait until I am older than join a medical aid when I really need it?
The Medical Schemes Act allows medical schemes to impose a ‘late joiner penalty’ on members that join after the age of 35. The maximum penalty imposed is 75% for persons over the age of 55 who have never been on a medical aid. Over the age of 35, every ‘break’ in your cover will affect your ‘late joiner penalty’. Every time you leave a medical aid you are issued with a certificate of membership – keep them! This loading can amount to thousands of rand, and will follow you to any other scheme you join.

Recommendation: It is solid financial advice to consider joining a medical aid sooner rather than later – it has the potential to financially cripple you if you don’t. Choose a medical plan that suits your lifestyle, and upgrade it if that changes. There is no need to have a fully comprehensive plan when you rarely claim – you are just subsidising someone else. Start with ‘cheap’ hospital cover and upgrade it later when things start to go wrong. At least you won’t be paying a late joiner penalty. The range of plans can be bewildering but simple brochure to help you through this process are available from most of the bigger medical aids. Contact us if you’d like the Discovery brochure  <a title=”Contact Us” href=”http://kerenga.com/contact-us/”>contact us.</a>

What is a prescribed minimum benefit?
Prescribed Minimum Benefits are a set of minimum benefits for 270 conditions and 27 chronic conditions (Chronic Disease List). These were imposed by the government on schemes to ensure that every medical aid provide a basic level of care at an affordable rate, out of the risk portion of your medical aid not the savings. 13 years down the line this aspect of medical aids is still poorly understood, and medical aids on the whole are quite happy to let you pay for stuff that you should perhaps be getting for free.

Recommendations: If you have a chronic condition for which you are having to take medication, go onto your scheme’s website or the Council for Medical Schemes here and check. Then call your scheme’s call centre and investigate further.

What is the best way to sort out a claim query?
Because medical information is confidential, the first stop should be your scheme’s call centre because your broker will not be privy to your specific conditions. If you don’t get a satisfactory response, refer it to the scheme’s complaint centre or internal ombud. The final port of call will be the Council for Medical Schemes – this is where you will need your financial advisor or medical aid broker to assist.

Recommendation: Although it is a grind, look at your monthly statements, and start to get an understanding for what the codes mean, and how much you can expect to get paid back. If you have a claim against a code rejected, call the call-centre and ask for an explanation. On an annual basis monitor your claims, savings account, payback and premiums to see if you are on the right scheme.

What are co-payments?
Co-payments are amounts that you usually have to fund, upfront, on admittance to a hospital outside of the scheme’s approved list, and usually for elective rather than emergency surgery. These co-payments are clearly set out in the documents sent to you by your scheme, please make sure you know what your potential liability is. It may be worth your while to upgrade your scheme to one that does not have co-payments or put an emergency fund in place.

Recommendation: You need to read through your policy document and keep it at hand so that you know what cover you have in place. Put your scheme’s call centre number on your emergency number list and in your RED FILE because they will be able to quickly answer your queries before you commit yourself to a procedure that won’t be paid for as you hoped.

How do medical savings work?
The use of medical savings essentially distinguishes between traditional and new generation schemes. To put it very simply – at the beginning of the year the ‘new generation’ scheme will credit your savings account with the full year’s savings and all ‘day-to-day’ expenses you submit will be reimbursed to you out of this savings according to their rate. When this savings account is depleted you enter into a ‘self-payment gap’ where you will not be refunded anything – but you must continue to claim. Once you are over the self-payment gap the medical aid will start reimbursing you again – at their rate. Some procedures and conditions have a limit over and above this.The savings will be rolled over from year to year – they are in effect ‘yours’. The previous year’s roll over are not taken into account when working out the next year’s threshold – so you aren’t prejudiced by not claiming. If you leave the scheme with a credit it will be refunded to you. In a traditional medical scheme you are given a ‘budget’ for all the procedures and these are paid back to you according to their rates. More info in the blog HERE.

Recommendation: If you have a savings component to your medical aid, submit every single claim ESPECIALLY if you are in the self-payment gap. Use generics when possible to keep the costs down. Recycle your frames when getting new prescription lenses. Engage with the scheme’s loyalty and wellness programs – they work.

What happens to newborns on my medical aid?
Newborns are added to your medical aid immediately without any underwriting. This can be very important if the baby is born with a problem. Although you have 90 days to register the new-born on your scheme, do this immediately or get someone in your family to do it.

Recommendation: Get the forms filled out ready to go the day the baby is born.

What is a designated service provider?
This is a list of medical providers that have contracted to the scheme to provide services at a negotiated rates that the members do not have a shortfall, one doctor can have this arrangement with a number of providers. A large scheme will have contracted with a larger number of providers, and your preferred provider may well be on the list. The quality of the Designated Service Providers is usually good, and if you don’t mind possibly changing your primary care physician or not being able to choose your specialist then this may be the route to take, and it could save you a fair amount of money.

Recommendation: Investigate the providers that are on this list before dismissing this option out-of-hand. When you find someone you might want to use, investigate them, google them. Are you happy with their experience and qualifications? It is your life, your body.

I thought medical schemes are not for profit - how does it work?
Essentially medical schemes make their money from the administrative arms of the scheme which is housed as a completely separate company and therefore can, and do, make profit. The scheme will invest in a solvency fund (as required by law and monitored), pay out the members and doctors, staff from that fund. They also pay over a percentage of the premiums to the administration company. One way to judge the health of the scheme is to determine how ’solvent’ they are.

Recommendation: Check your medical aid’s solvency, this is public information. If your scheme fails ( and plenty have done just that I the last 10 years including old Mutual’s Oxygen) it is likely to be taken over by another scheme and your benefits and premiums will change and you are likely to wait a long time for any refund.

What happens if I'm in an accident or emergency?
An emergency is defined as a condition that requires immediate surgical or medical treatment and where failure to provide such timeously would result in severe impairment or would place the person’s life in jeopardy. Even if you are on a scheme where designated providers are required, you would still be covered at any hospital you are taken to and the admission paid for – but you will be moved as soon as you are ‘stable’. If you choose not to be moved then the usual co-payments would be required.

Recommendation: The single biggest cause of emergency admission is car or pedestrian accidents. Put the medical aid decal you are sent in your car window so that the ambulance at least have a clue you are on a private scheme. Every member of the family needs to keep a medical aid card in their purse or wallet. This will ensure that medical personnel can contact the medical aid for additional information immediately – or get emergency contact details if you aren’t in a position to give it to them. If you have a life threatening allergy or condition stick this info on the medical aid card too.

What is the reference price list?
The National Health reference price list was scrapped in July 2010, forcing providers to develop their own lists. Some of these prices have diverged significantly over the ensuing years – basically a ‘hidden’ way of bringing down the benefits. These lists are extremely long and it is almost impossible to compare different schemes. In your plan providers will quote a ‘percentage’ of this list that you get refunded, ranging from 100 to 300%.

Recommendation: Get a quote in writing from specialists, anaesthetists etc. before undergoing an elective procedure ( there is nothing wrong with negotiating either). Find out from the call centre how much of that you are going to have to fund. You can reduce this sort of expense by using participating specialists and doctors. This can be further complicated if the doctor doesn’t work out of participating hospital.

What about the NHI - what impact will it have on me?
The NHI or National Health Insurance started it’s 5 year pilot phase last year so theoretically will be rolled out nationally in 2018. The single biggest obstacle is the funding. Even at this early stage, getting pilot sites up to minimum standards is proving to be a huge challenge. The reality is that the level of healthcare being provided to the average South African ( government health care) is so poor we even rate below Rwanda in this regard.

At this stage the official line is that membership of the NHI will be compulsory, and the deduction will be made at employer level rather like the UIF. It is likely that you will not get ‘credit’ for your private medical aid and the existing tax credit may also fall away. If you want private health care you are still going to have to pay for it. For most middle class South African families this is likely to make private medical aid membership unaffordable. The biggest medical aid schemes are working with the government on the rolling out of the NHI which is very positive, but whether the medical aid premiums are going to come down as a result remains to be seen. One potential positive outcome is that the NHI will put a lid the medical aid inflation which has been hitting double digits for decades and in many respects is out of control. Incorrectly handled though it may well accelerate the emigration of the top health care professionals. It is also going to require a change of ‘habit’ for many middle and upper income South African who never use community or primary health care professionals that aren’t ‘doctors’ – even if it is a waste of their skills.

Take childbirth for example.In the UK a delivery by a doctor let alone a gynae is the exception, not the rule – here it is the rule and midwives are under-qualified and underutilised. Because there are so many unknowns at this point and it is likely that the deadline date will be pushed out, there is not a lot one can do at this point – except perhaps engage in wellness programs to reduce your need for the service at all. In time, and once the costs and specifics are known, it is likely that new product offerings will emerge to plug the gap at a more affordable rate than the full blown offerings we have become accustomed to. More info in the blog HERE.

Recommendation: Stay informed and worry about it when it is a certainty. Reduce the potential for claims in the long term by managing your health now. It may be prudent to put ‘dread disease’ cover in place while you are insurable that will pay you out a lumpsum for a condition that can then be used to buy private care and fund shortfalls.

What info should I put in my RED FILE ?
Your RED FILE  should contain copies of all your important documents, contact details, estate plan etc so that anyone can pick up one file and start putting things in motion should you be incapacitated.The contents page and instructions page should be personalised and updated frequently.If you would like us to send you a template for this file please contact us. From a medical aid  perspective you need to have a copy of your policy in the file and brief instructions in the instructions sheet, including your call centre number details, brief description of the type of cover ( Hospital cover, Designated Providers, Co-payments, Loyalty program).. 
Is it better to use a broker or a call centre?
Short term insurance is highly competitive and it makes sense to get comparative quotes every couple of years. Contrary to the claims by the call centre companies that ‘cutting out the middle man’ brings down premiums, this is not borne out in fact. Think about it, where does the money for the massive TV ads and huge call centres come from? They just use the portion of your premium that normally goes to broker commission to fund those other activities. You think your loyalty bonus is free? Nope. It is built into the cost. When you have some comparative quotes consider what is the most important factor : Price, benefits or service. Make use the comparative quotes are truly competitive, companies that advertise getting x number of quotes for you don’t tell you that they are all white labelled products of the same company- the advertising authority has forced them to remove the ‘competitive’ description from their ads). All policies are not the same and you are going to have to read through the small print at some stage, or find a broker or trusted advisor who will point you in the right direction. Look at the historical premium increases for the company you are considering. If you are going to lock yourself into a 4 year period to get a bonus, make sure that your premium increases don’t rise above inflation. What is your claim history like? What are your chances of having to claim within the 4 years for example?

Recommendation: Get comparative quotes every couple of years.Decide what is important – price, quality or service and choose accordingly. Take any bonus out of the decision if you might lose it if you claim. 

What is non-disclosure?
Non-disclosure in the short term and life industry is the since biggest cause of repudiation (declining to pay) of claims.When taking out Short term insurance you will always be asked if you have had any accidents or claims in the last 5 years, what you may not be told explicitly by the call centre is that means any accident, whether or not you have claimed for it. If you had a bumper bashing and fixed it yourself because it was below the excess and then not disclose it this can be used to repudiate (and has been the reason for dozens of repudiations recently and the reputations have been upheld by the ombud). If your geyser started to leak and you got it fixed yourself, your house alarm occasionally doesn’t work, you suspect you might have termites in your woodwork – disclose fully.

Recommendation: Full disclosure. If you are using a call centre, listen to the questions very carefully. The calls are recorded and if you have a dispute they will be used. If you or your broker are filling out the form, read the questions carefully. One of the questions asked that has caused the most problem is “ Have you had any accidents in the last 5 years” , i.e whether or not you have claimed – as opposed to the question “ have you claimed any time in the last 5 years”.

Do I have to use the bank's insurers for my house??
When you take out a mortgage bond you usually have to have house insurance and banks would obviously like you to take that out with them. You are not compelled to do that, but will have to inform them of who you have taken out the insurance with, and they will check that it meets their requirements. Again, get a comparative quote. Many of the large insurance companies have ‘free’ benefits that come with a house policy that can be very useful. I like the thought of having my garden insured if it gets destroyed in a major event – anyone who has been to a nursery recently will know just how expensive even fixing one square metre of a garden can cost. In other words, find cover that is competitively priced, will give you the benefits you need or are important to you and the service level you require.

Recommendation :get a comparative quote – see what benefits you get and make the decision from there.

How do I value my house contents?
Incorrect valuation of household contents is a huge problem. If you have been too conservative then your claim is going to be reduced by the same percentage. Anyone who has done a full contents audit will get a shock when they add it all up. I collect books – when it came to putting a replacement value on those books I was mortified. The likelihood of someone coming in – with a 10 tonne truck – and stealing all my books – is minimal yet it added 20% to the value of the contents of my home. Yes they would burn down in a fire but then would I replace them all? I now collect by books on kindle – but this just illustrates the problem. Perhaps take out insurance on an item by item basis – the expensive electronics, appliances and maybe clothes – all the stuff that usually goes missing – but this is not usually available.
Recommendation : Do a full house audit ( that can be easily updated every year) and put in the replacement cost. That is what you need to declare to the insurance company if you don’t want a nasty surprise at claim time. Find the value of the items in the top 10% – the plasma TVs, electronics – anything that would be very expensive to replace all at once – and compare that to your annual premium that is what you are most likely to be claiming for.
If I don't claim, do I have to tell the insurer?
Absolutely. If you don’t you may have your claim repudiated for non-disclosure. The reasoning behind this is that it effects your ‘risk profile’. So although you might be trying to hang onto your bonus by doing a repair or replacement yourself – you still need to tell them ( and your risk profile may be adversely affect and your premium increase).

Recommendation: Read the small print and discuss this with your broker or the call centre agent.

How can I bring my premiums down?
One of the best ways to bring the premium down is to ‘self-insure’ – within reason (savings pocket and police trained German Shepherd perhaps). With Car insurance ask how the premium can be reduced by increasing the excess or other restrictions. House cover is pretty standard and you are more likely to get better benefits for the same price rather than getting the premiums down. Do an audit on your household contents, then decide whether self-insurance isn’t the way to go for theft ( fire and flood are a different story). The chances of a gang arriving with a removal van and taking everything out of your house down to the last teaspoon is very rare – but it has been known to happen. More on the possibility that government will make car insurance compulsory HERE

Recommendation : Do the math and then pick your broker’s brain. Let him/her help you custom-make cover that suits you, not a mass produced product someone tries to shoe-horn you into with no flexibility.

What happens if I value something too low?
If you have valued your household contents too low, then you are only likely to be paid out a percentage of the claim you submitted, the same applies to a personal item, house cover. Most people have their car value too high – you are not going to be paid out the higher amount.

Recommendation: Do a full audit of your ‘stuff’,  get comparative quotes then decide what you really want/need and what you don’t. Don’t try and save money by undervaluing your items. Revaluing your jewelry every year can be very expensive – see if there isn’t an alternative. If your jewelry is only valued if it is in a safe then it’s not much use to you.  

Do I have to have armed response?
All insurance companies will have a clause requiring certain security including burglar bars, gates on sliding doors and armed response. The cost of putting a security gate on every single outside door could cost tens of thousands of rands. The average armed non-response costs anywhere from R500-R1000 – to stand outside your gate and leave a note in your post box to say they couldn’t get in because of your wall/electric fence/ fierce German Shepherd. Your family’s security is very important, and everyone needs to decide what works for you, but be aware there are alternatives.

Recommendation : Take a holistic view of your family’s security as a completely separate issue to your insurance. Having armed response at the touch of a button can lull you into a false sense of security. I was in a house invasion where my daughter was assaulted and tied up and my face cut open – the high pitched alarm of the panic button frightened them off – the armed response never pitched up. Look at putting early warning/panic alarms in place ( electric fence, door alarms, motion sensors and plenty panic buttons) – they don’t necessarily have to be linked to an armed response. Technology has evolved to the stage where you can personally be notified of an intrusion and view your house on CCTV over the internet. The cost of all that is going to be less than a year’s subscription to an armed response company. My favourite deterrent is ( you’ve guessed it) a huge German Shepherd who sleeps next to my bed and is not an ‘outside’ dog ( I walk her extensively in parks instead). I have a simple philosophy – put enough external deterrents in place so that the intruder would rather choose a less secure property.

What about personal items?
Personal item insurance is comparatively expensive because it is the most claimed from category – laptops, cell phones, cameras and jewelry. If you decide not to take out household content insurance, it is probably worth your while to take this out.

Recommendation : Personal items that leave the house need to be specified separately, and valued properly. They are also among the items most claimed for ( cell phones, laptops, jewelry etc). When it comes to jewelry – especially bespoke designs – read the small print. Excesses usually apply and be aware of what they are. Many of these items will not be covered if they aren’t stolen either from a locked boot of your car or snatched off your person. The wave of jamming thefts that do not damage the boot of the car, making it almost impossible to prove that the items was stolen from the boot has created many problems. Check with your broker (or call-centre agent … yay) on how this would be handled. How will jewelry be replaced? Will your one of a kind, emerald and diamond engagement ring designed by a top designer be replaced by an off-the-shelf mass produced piece of rubbish from a mass-market jeweler? (Yup, store point).

What info should I put in my RED FILE ?
Your RED FILE  should contain copies of all your important documents, contact details, estate plan etc so that anyone can pick up one file and start putting things in motion should you be incapacitated.The contents page and instructions page should be personalised and updated frequently.If you would like us to send you a template for this file please contact us. 
What does underwriting mean?
The term underwriting is the process banks and financial institutions use to assess the risk that they are covering in a policy (and derives from the Lloyd’s of London). In a life policy they will essentially be determining the risk of you making a premature claim. The underwriting usually involves a medical and occupational questionnaire, with additional medical tests or questionnaires if a red flag is raised. In South Africa an HIV test is almost always the minimum requirement. Based on the underwriting the provider may only issue the policy with ‘loadings and exclusions”. A policy with no loadings or exclusions is issued under ‘standard rates’. More about non-disclosure and the implications  HERE

Recommendations: Make full disclosure on your application without having a pity party. If you occasionally wake up in a bad mood that is not the same as clinical depression. Be aware that one of the biggest red flags and reason for outright decline is recreational drug use.

What do loading and exclusion mean?
Following underwriting (see above) an insurance provider may make a ‘Counter Offer” to a client if they aren’t being accepted on standard rates – whereby the policy will only be enforced if loading and or exclusions are agreed to in writing. A Loading is an increase in the premium, usually shown as a percentage. This could be applied to all benefits, or only some of them (like permanent disability for example). Loadings are often applied on pre-existing medical conditions ( like cancer or a back injury) and can be as high as 500%. Certain occupations where injury can occur will also attract loadings, including using your hands which can cause injury (fitter turner for example or hairdresser) or time spent on the road.  Exclusions are usually specific to a body system. For example someone with a history of depression may have a ‘mental health’ exclusion and lifetime suicide clause (it is usually 2 years). If a loading or exclusion appears unreasonable or excessive, your advisor may be able to get you better terms with another provider. More about non-disclosure and the implications  HERE

Recommendations : Don’t accept a loading or exclusion without investigation and approaching other providers. (  

Can I be refused cover?
Yes, you can be refused cover with a provider or a number of providers for a number of reasons. No insurer is obligated to provide cover, and outright declines occur from time to time. This is unlike Medical Aid cover where outright declines for medical reasons cannot be imposed (interestingly this is not the case in the States, and the so-called Obama Care is controversially introducing the same rights that we take for granted).  In high risk cases occasionally a provider will give ‘deferred” cover whereby the claim is not paid for a period of say 5 years, but premiums must be paid. If the life assured dies before the period is up they may be refunded the premiums.

Recommendations: Make full disclosure and inform your advisor of any major changes in lifestyle, ask another provider to assess if you feel the loading or exclusion is unreasonable.

When can insurance companies refuse to pay a claim?
The single biggest reason for claim repudiation (refusal to pay) is non-disclosure and statistically is most prevalent in the call-centre environment. This may be because in a telephonic interview neither the call centre agent or the client understands the medical terms of the conditions they have. In traditional questionnaires the questioning usually follows body system by body system and if you or your advisor is unsure, then notes can be made and medical personnel will investigate and assess. If you change occupation, travel to 3rd world countries, take up smoking or a dangerous hobby (like marriage – just kidding) then inform your advisor.

Recommendations: Full disclosure, ask for a summary of the medical questions if the underwriting was done on the phone.

What is 'termed' insurance?
“Termed” has a fixed end date – it might run for 5/10/20 years for example. Thereafter it usually ends. Most disability assurance is termed to age 60/65/70 but life assurance is usually sold for ‘whole of life’. There are some important considerations when choosing whether or not you want termed life assurance. If the cover is for a specific need – say to cover a mortgage bond – then insurance for that liability, perhaps even on a reducing capital amount, may make sense – and will be considerably cheaper. Bear in mind though that people often change houses every 7 years, and ‘buy up’ so the bond often continues to increase. If you have termed assurance and are now “uninsurable” you may not be able to increase the term or the amount covered. If the cover is for your children until they are no longer dependents (which is sometimes never) then it makes sense to term that cover ( and even have it on a reducing amount, or level with no increase as the liability decreases every year – theoretically). There are providers that will give termed insurance AND allow you to extend it without underwriting. Contact us HERE if you want to find out more

Recommendations: Think carefully before taking out termed assurance, you will save substantially but may end up with no cover later in life and need it.

How do the premium patterns work?
The choice of premium pattern at the beginning of your policy can have a massive impact later in life. Every provider will call these patterns different things but essentially these are the things to look for :

Benefit increase versus premium increase. Logically one might assume that for every 1% increase in benefit you would get a 1% increase in premium. Not so. Although the difference between these two will vary significantly from provider to provider, the increase in premium is usually at least 2 to 3% above the benefit increase. This is because you are more expensive to insure as you get older ( greater chance of dying and all that) so that small percentage ‘extra” cover you are getting is costed at your new, older age. Some providers claim to have a one to one increase, but will then admit that the ‘underwriting’ differential is just factored into the initial premium so in an ‘apples for apples’ quote they will be more expensive. The only time you get a direct one to one correlation is when the benefit increase is zero. It is important to get clear financial advice on the implications of this from your advisor or broker. More about premium patterns HERE.

Level premium. This premium, if set at zero benefit increase, will have the same premium for the entire term.

Age rated :This premium will start below the level of a level premium ( for the same benefit) but increase every year. The increase is usually between 5 and 7%. When you plot the premium increases in a level versus age rated premium on the same graph, the age rated premium equals the level premium after about 7 years (on average) and thereafter continues to increase.

Stepped : This is similar to level but with a substantial increase  of around 25% or so every 5-10 years. This premium pattern is not popular.

Recommendations: Be aware of the premium pattern on your policies. Most providers will have a table showing you what the premium increases will look like over 10-20 years – without the percentages. Work out the percentage increase or ask your advisor to help. If the increase is way above inflation, they could well become affordable. If you are obliged to take out life assurance for your bond, make it separate from your family policy and consider making it termed and with no benefit increase. 

How can I keep my annual increases down?
The most obvious way is to check your premium pattern ( see above) , a level premium pattern may be more expensive initially but will remain affordable. Some loyalty programs will also help keep the premiums down, if not directly then with bonus paybacks. More about premium patterns HERE 
How much do I get back if I cancel?
In the past assurance polices were structured with an investment as well as life component. These fell out of favour but have resurfaced in a different guise. Those older polices would have an cash value that you could either loan from, or on cancellation, get in it’s entirety. On death though this amount was lost. PPS continues to have 2 investment components, one which you would get on cancellation, the second part only on retirement. Many providers now have bonuses and paybacks linked to their policies that are paid out periodically, or at retirement.  if you cancel the policy before that time is up you lose it all. It is, to all intents and purposes, they are ‘golden handcuffs’ to make sure you stay as long as possible.

Recommendations : Your financial portfolio analysis done by your financial advisor will identify if any of your existing life policies have an investment component. make sure you understand the loyalty bonuses you may get from the provider – and more importantly how you can lose them. 

Can I put 'in terms of my will' under beneficiaries in my life policy?
A life policy is a contract between the provider and the life assured (you) and supersedes anything you have written in the will – unless you nominate “my estate” or “in terms of my will” as the beneficiary. If the proceeds are left to a natural or juristic person then the proceeds are ‘deemed property’ in your estate, if proceeds are left to the estate they are ‘property’ . Sounds like semantics right? The definition is important, executors can only get paid on property they handle in the estate, not deemed property. More about Estate planning and wills in a short free eBook, HERE

The maximum executor’s fee of 3.99% (inc VAT) doesn’t sound like much. Think on this: The proceeds will only be paid out to your  dependents after the estate has been wound up – usually some 18 months later. The average life policy will pay out directly to a beneficiary within weeks. By turning the policy into property from deemed property by leaving it to the estate  – on say a R2m policy – you will be increasing the fees to the executor by about R80 000, for doing nothing ( except making his life easier). It is a good idea to create ‘liquidity’ in the estate to pay for outstanding debt, income tax, CGT, estate duty etc. One can get around the automatic fee levy by the executor by leaving that decision up to your surviving spouse or children who can then negotiate a flat fee with an executor – then leave the amount required as identified by your estate plan to the estate. Leave these instructions in your RED FILE. If you have an undertaking that you or your children will be nominated in a life policy ( following a divorce for example), be aware that it takes minutes to change the beneficiary and you may be none the wiser. Total cession of the policy is a much safer idea, then no changes can be made without your permission and you will be informed of premium lapses.

Recommendations: Only leave money to the estate as a last resort or if your beneficiaries are the executors. Rather have an estate plan which is kept with the will so that your beneficiaries clearly understand how you want your estate to be wound up, and where the liquidity has been created. If your broker has recommended you put ‘in terms of my will’ on your policy AND they are the executor this could be construed as blatant conflict of interest and perhaps not the greatest financial advice. 

Can I leave the money in the policy to someone who isn't in the will?
Your life policy is a contract between you and the insurance company and supersedes the will. You can leave the entire amount to a charity, friend or stranger and there is nothing the beneficiaries in the will can do about it.

Recommendations: Review your policy’s beneficiaries annually. If there a  death in the family, or you get divorced, change the beneficiary immediately. It is one form and only takes a day or two to reflect. The last thing you want is a nice life policy going to your ex spouse because you forgot to change it.  

What info should I put in my RED FILE ?
Your RED FILE  should contain copies of all your important documents, contact details, estate plan etc so that anyone can pick up one file and start putting things in motion should you be incapacitated.The contents page and instructions page should be personalised and updated frequently.If you would like us to send you a template for this file please contact us. From a life cover  perspective you need to have a copy of your policy in the file and brief instructions in the instructions sheet, including your broker call centre number details, brief description of the type of cover, if funeral cover is included etc. 
What is the difference between capital disability cover and income protection?
Capital disability cover, more commonly referred to as Permanent Disability cover these days is usually a lump sum amount that is paid out to you when you are declared ( by a panel of doctors employed by the provider) to be permanently disabled. This amount is tax free and whether or not it reduces you life cover amount will depend on how your policy has been structured. Once paid out it usually cannot be clawed back ( unless fraud has been proven).  Permanent Disability cover can also be paid out monthly and in some instances will be stopped if the client miraculously recovers. All these kinds of ifs and buts change on an annual basis, and usually become more favourable ( a good reason to re-look at your policy and ensure you have the ‘best’ benefit. More about disability HERE

Income protection is also referred to as Temporary Disability and is usually paid out as an ‘income’ after the waiting period until you recover or the condition is deemed permanent.  At the moment the structure of most income protection policies allows for this premium to be deducted from tax, because the income will be taxed. This is currently being reviewed by SARS and in the future it is likely that this deduction will be removed, and the income will become tax free. If and when this occurs your policy should be reviewed as it may have been adjusted for tax.

Recommendations: It is usually a good idea to pay off debt on the diagnosis of a permanent disability for the simple reason that interest payments are linked to the repo rate and can fluctuate. If you are going to be on a fixed income for the rest of your working life then certainty is a good idea. Lump sum permanent disability cover is ideal for this, and the cover is relatively cheap. An temporary and permanent income for the rest of your working life, increasing at inflation, makes a lot of sense. Obviously this amount can be ‘capitalised’  fairly easily, then the lump sum invested to produce an income if that is your preference. The obvious downside to this method is that your income will be dependent on the market and investments and may be at a time where you don’t have the inclination or experience to keep a good eye on those investments.

Can I claim the income protection (ICB) premium back from tax?
It depends. This varies from provider to provider and you need to discuss this with your advisor or call the provider directly. This practice of a tax deduction for ICB premiums is currently under review and is widely expected to fall away in the next 2-3 years.
Is the income or lump sum I received taxed?
If you have claimed the premiums in your tax return, then the payment will be treated as income but does not usually apply to lump sum amounts. This could also apply if you could have claimed but didn’t. Some providers have structured their product to be a capital payout, and in this case the amount will not be a deduction, nor will it be taxed. This confusion is being clarified by SARS and it is likely in the future that the premium will not be a tax deduction and the proceeds will not taxed. More about disability HERE 
What if I have cover for more than 100% of my salary?
In terms of the ASISA guidelines disability payouts should not exceed 75% of the salary and the amounts received from all the providers should be ‘aggregated’ (lumped together) and the excess amount will not be paid. Not all providers follow the ASISA guidelines, but these providers usually do not allow the (aggregated) amount to exceed 100%. Some providers aggregate, others don’t. Obviously one doesn’t want to make the incentive to become disabled and not return to work attractive but this is  still a fairly grey area.

Recommendations: After providing death cover for your dependents, disability cover is a vital part of any risk portfolio. My recommendation is usually to combine a lump sum permanent disability equal to your debts plus the lifestyle changes you might need to make, then add temporary disability income  which converts to permanent disability and lasts to at least age 65, if not 70.  The cover should not exceed 100%, including the capital amount and your group benefits that have continuation options must be included.

What terms and conditions should I look out for?
In older polices the distinction was made between ‘own occupation’ and ‘own or similar’ occupation. Although his came with a premium difference, this distinction was one of the major culprits of giving disability cover a bad name. For example if you were an architect and lost the use of your hands, it could be argued that being a lecturer would be a similar occupation (professionals were the first to be given a category of their own exempting them from this). This distinction is falling away, but it is important to understand how your provider determines how and when you will be paid out your disability cover. Some will add ‘activities of daily work’ or ‘activities of daily living’ or both. More about disability HERE

Recommendations: Ask  your advisor or the call centre agent. If you still don’t understand ask for the technical specifications and get a second opinion. The small print will probably not tell you enough for you to know what it is you are buying but your advisor will probably be able to give you an electronic brochure that gives you more detail.  If you have an old policy with ‘own or similar’ definitions, look at upgrading it.

How do they determine how disabled you are and what to pay?
Temporary disability is usually initially paid just on a doctor’s note ( your own doctor) with the doctors employed by the provider only getting involved after 3 months. Thereafter you may be asked to prove the income you are claiming, and/or prove the loss of income. If your income is in a  delayed form – commissions or royalties which are only going to reflect in the future, this can be problematic. Permanent disability usually has to be verified by a panel of doctors employed by the provider, and the measurements used can vary significantly. In general temporary disability usually lasts a maximum of 2-3 years before it is declared permanent.

Recommendations: If you are self employed or a large component of your income is from commissions then get your advisor to find cover that suits your needs and spelled out the small print. Specifically ask :  Do you require proof of loss of income? Is this underwritten upfront or at claim stage? How do you take residual  (historical) income into consideration and how do you determine permanent disability? This cover is relatively expensive, when in doubt get a second opinion even if you have to pay a fee for it.  

If I have been paid out on permanent disability but go back to work, what happens?
If you have been paid out a lump-sum and there is no fraud involved, nothing will happen. If you are paid out an income this may cease.

Recommendations: This varies so much from provider to provider you need to ask this question of your advisor. If you aren’t happy with the answer ask your advisor for quotes from other providers who handle this differently. Although statistically it is unlikely that you will become disabled, the effects are so devastating it is an important component of your peace of mind.

What does accelerated and non-accelerated cover mean?
In most risk policies life cover is the core benefit and the other benefits like dread disease, lump sum disability will be ‘accelerated life cover” – in other words pay out your life cover early, and reduce the life cover by the same amount. For example if you had R1m life over and R500k disability cover and were paid out the disability cover then your life cover would reduce to R500k. The ‘opposite’ of this is ‘stand-alone’ cover which will pay you out the disability without impacting your life cover, it is understandably more expensive. Some provider have a blend of these, for example Discovery’s Minimum Protected Fund. Income protection benefit is usually stand alone.

Recommendations:  Accelerated life cover may make sense when it comes to disability cover (as your life expectancy  unfortunately is likely to have been reduced), but not necessarily in the case of dread disease (where the likelihood of living a long life if you are ‘cured’ is good). Check the ‘reinstatement clause’  in other words if you have made a dread disease claim – whether stand alone or not – and die in less than ( say) 14 -30 days later, you may not be paid both even if the benefit is stand alone.   

What role does my occupation play in disability cover?
The concept of ‘own or similar’ occupation was a major point is discontent in risk cover in the past and this has resulted in a lot of changes to the way occupation is treated. Professionals are treated differently, the criteria used to ‘professional’ are  usually associated with at least a 4 years degree but this is also changing with business owners now also being considered professionals. Some occupations deemed to be hazardous might also attract a loading or outright decline from some providers – hairdressers, artisans, pilots.

Recommendations: If you come across a loading or decline discuss how this would be handled by other providers before signing a counter offer letter.  

Does income protection cover only last while I am working?
Previously income protection cover could only last to age 60 or 65, in the last few years this has extended out to age 70 and now whole of life options are also available.

Recommendations: If you are self employed or a business owner and have no intention of retiring, then it makes sense to take out cover for whole of life or age 70. Some providers have the option to convert this into dread disease cover. If you want the option to convert, which seems like good sense, be aware that by the time you are (say) 65 the cost of the dread disease cover is going to be very high and the switching of your premium to dread disease is going to translate into a disappointingly small amount.  

What info should I put in my RED FILE ?
Your RED FILE  should contain copies of all your important documents, contact details, estate plan etc so that anyone can pick up one file and start putting things in motion should you be incapacitated – which is highly likely in the event of disability. The contents page and instructions page should be personalised and updated frequently.If you would like us to send you a template for this file please contact us. From a disability perspective you need to have a copy of your policy in the file and brief instructions in the instructions sheet, including your call centre number details, brief description of the type of cover ( Income protection, lump sum permanent disability etc.).. 
What does severity based dread disease cover mean?
Dread disease risk cover has evolved considerably over the last 10 years and is bench-marked against the SCIDEP grid ( Standard Critical Illness Definitions Project) – which you will see in your quote from most providers. It is actually pretty difficult to determine exactly what you will be paid, and more confusingly when. Severity based cover is also called tiered cover. Essentially it will pay you out a portion of the cover you have elected depending on the severity of the condition. The degree of severity is decided by your doctor and in the case of cancer for example it is usually understood as Stages 1 to 4. Typically  it pays out in increments of 25% as the disease becomes more severe. To put it bluntly, if you put in a claim for first stage cancer, with a cover of R1m they will pay you out R250k and ‘please come back when you get sick again’. I don’t know if you can tell but this is not my favourite option. The rationale from providers is that if you are paid out the full amount you will fritter it all away and not have any left if it comes back again. More about dread disease cover HERE

Recommendations:If you need a nanny, then this is the best option for you.  

What does accelerated versus standalone cover mean?
In most risk policies life cover is the core benefit and the other benefits like dread disease, lump sum disability will be ‘accelerated life cover” in other words pay out your life cover early, and reduce the life cover by the same amount. For example if you had R1m life over and R500k dread disease/critical illness and were paid out 100% of the cover then your life cover would reduce to R500k. The ‘opposite’ of this is ‘stand-alone’ cover, and it is understandably more expensive. Some provider have a blend of these, for example Discovery’s Minimum Protected Fund. Income protection benefit is usually stand alone.

Recommendations: Because many critical illnesses you can recover from completely and live a long life, my recommendation is that critical illness cover be stand alone. Although you may recover from the condition you are likely to be ‘uninsurable’ for a long time, maybe for the rest of your life – so that life cover needs to be protected.   

How do I work out how much I need?
Because most of the medical procedures required in a critical illness are covered by a medical aid, and if you are off work for a prolonged period of time on doctor’s orders then your Income protection will kick in, critical illness cover is there to cover the gaps not covered by your medical aid, allowing you to recover fully- perhaps take unpaid leave. It also plays a strong psychological role to help you get over the ‘unfairness’ of the disease. “Someone must mar pay”. More about dread disease cover HERE.

Recommendations : Because this cover is the ‘least’ important when money is tight, my recommendation is to go straight for the best cover, not tiered, even if it has to be for a smaller amount. Even better have cover that re-instates for new events on different body parts. In other words if you fully claim for cancer then have a heart attack, they pay you out again.    /spoiler]

What if I die soon after suffering a dread disease event, will my estate get paid out for both?
Not necessarily, ask your advisor this question on the product he/she has recommended.
What terms and conditions should I look out for?
Very few quotes will detail what diseases are covered, and which aren’t. Ask your advisor for the technical specifications of the different comparative quotes you receive. be aware of WHEN they pay out, is it on diagnosis or later on assessment? Obviously on diagnosis is quicker. Some diseases like MND can take years to progress.

Recommendations: Decide what you want and why. Is there a family history of a certain disease that worries you? Critical illness cover is more about getting over it and making the lifestyle changes than financial hardship. Choose carefully and think twice before taking out an inferior product that just covers cancer for example. 

How long after the event do I have to claim?
Make sure you know this and highlight it in your Red File. In most instances it is only 6 months.
Recommendations: Find out the small print with your provider and make sure the claim procedures are easily accessible. The front page of your Red File should include basic details on what to do in the event of a death, disability or dread disease claim.
Do all the providers cover for the same diseases?
In short, no. The cover will vary for cover just for the ‘big 3′ – heart attacks, stroke, cancer to cover for hundreds of diseases and conditions. This will not be in your quote, your advisor is going to have to get you a separate brochure on what exactly is and isn’t covered.
Recommendation: My recommendation is to put this brochure in your Red File along with the policy paperwork.
What info should I put in my RED FILE ?
Your RED FILE  should contain copies of all your important documents, contact details, estate plan etc so that anyone can pick up one file and start putting things in motion should you be incapacitated.The contents page and instructions page should be personalised and updated frequently.If you would like us to send you a template for this file please contact us. From a dread disease  perspective you need to have a copy of your policy in the file and brief instructions in the instructions sheet, including your call centre number details, brief description of the type of cover ( Tiered, stand alone etc) and most importantly the time period you have in order to make the claim.
Retirement FAQInvestmentGroup SchemesEstate Planning & Wills
What is the difference between an insurance provider and LISP provider for Retirement Annuities (RAs)?
Retirement annuities are governed by the Pensions Fund Act and have to be invested on a ‘life platform’. ( A Life platform is a category of Financial Services provider regulated by the Financial Services Board and is different to an Investment platform, many large FSPs have both). In the past RAs were only available with the large insurance companies ( not investment houses)  and the products were structured in such a way that advisors/brokers were paid commission upfront for the entire term of the investment ( or 27 years) . Prior to 2007 the insurers could also confiscate the entire investment if you stopped paying premiums. Thanks, in the large part, to a visible consumer uproar that played out in the media, this was changed and the FSB got an ‘undertaking’ by the insurers to reduce this to 30% on old policies, and 15% for new policies. The major reason for the penalties was ‘unrecovered expenses’ mostly broker commission. Most insurers still sell these RAs with upfront commission and impose the 15% penalties. LISP platforms that have ‘life licenses’ also provide retirement annuities BUT the commission is paid to brokers on an ‘as and when ‘ basis. In other words commission is only paid when a premium is paid. This obviously has a significant impact on the amount of commission paid to the broker who may have incurred significant costs in putting the Annuity in place. There are also moves afoot to make ALL investment commission on an as-and-when basis. More about retirement reform HERE
Recommendations: Only place RAs on a LISP platform unless there is a compelling reason not to – for example if the broker structures the insurance RA so there are no penalties ( usually by commission sacrifice). Make sure you have a broad range of funds to choose from and ensure the total expense ratio is low.
What does 'regulation 28 compliant' mean?
In the past retirement annuities could be invested almost anywhere from money market to specialised high risk niche markets (Resources only say). The Pensions Fund act introduced guidelines on how pension money should be invested to ensure investors do not invest in a highly volatile and risky portfolio and lose their entire investment. This is referred to as ‘Regulation 28 compliance’ and has evolved over the years. Most recently, individuals who add funds to an existing RA ( that may not be regulation 28 compliant for historical reasons) now have to make to regulation 28 compliant and the provider may not allocate the new funds until the change has been made.

Recommendations: Your advisor should check the compliance of your retirement funds on an annual basis.If your portfolio has been built up on an individual asset allocation basis – in other words separate funds for the equity/property/cash/bond allocations then it is highly likely that these will be out of balance in 3-6 months and your advisor may need to sell off some of the equity for example to bring it back in line. One of the best ways round this is to use a Reg 28 compliant managed fund.  

What is a preserver?
When you leave a company and have an investment in their pension or provident fund then you usually have 3 choices. You can withdraw the funds (or part of the funds) and pay tax on the withdrawal. You can transfer the funds into a retirement annuity (and it will not be accessible until age 55)or you can place the funds into a pension or provident preserver on an insurance or LISP platform which can be accessed ( lump sum tax will apply). In the last 2 instances the tax will be deferred to retirement (or withdrawal). More about retirement reform HERE

Recommendations: The lump sum taxation that is imposed on withdrawal of funds is onerous and impacts on your tax free portion at retirement, so preserving the funds is always the preferred route. It is highly likely that the government is going to stop the withdrawal of funds in future and enforce preservation to retirement. Make sure the platform you use is transparent, has a low TER and wide choice of funds ( with a reasonable number of free choices per annum). Because of the amount of admin required to effect this transfer, expect to pay an upfront fee to your advisor to manage this transfer and an annual servicing fee. 

What funds should I choose?
The asset allocation of retirement funds have to be regulation 28 compliant (see above). Briefly this means that no more than 75% of the investment may be in equity, of the other 25% 15% may be in property and the remaining 10% must be in cash or bonds. there is a further offshore restriction of 20%. More about blending the different asset classes HERE

Recommendations:Your broker can design a portfolio based on asset allocation principles which are updated at least once a year or you can choose a managed fund that is already Reg 28 compliant and all those decisions will be made for you by the fund manager. This is a slightly more expensive alternative but unless you have a highly experienced financial advisor it is the preferred option.

What does 'total expense ratio' mean?
In the past, the costs levied against a unit trust/collective investment was opaque and the only way a client could determine those costs was by doing complex internal rate of return calculations (IRR) a year or two later. All quotations and fact sheets must now disclose all fees, however performance fees are variable and hidden in the small print. Theoretically performance fees are only paid to asset managers when they outperform a benchmark, in reality some asset managers are paid as soon as the fund makes a single cent. It has also lead to unrealistic benchmarks being used.  The total expense ratio usually excludes the financial advisor’s fees. High fees, compounded over time can adversely effect the performance of the portfolio with no significant advantage. ‘Popular’  unit trusts – with loads of advertising – often have a high TER and you need to have a look at this on your quote. ‘Passive’ investing – using ETFs or tracker funds for example – is one way of bringing down those costs.

Recommendations: You need to strike a balance between TER and performance. Have this discussion with your advisor and  perhaps look at a variety of alternatives, ideally with some sort of portfolio analysis in comparison to their peers and benchmark. 

How do I work out what I need at retirement?
The best way to determine what you will need at retirement is to get a present value all your potential retirement expenses, adjusted for inflation. Most advisors will work with a model in order to help you calculate this but here is how it works: You need to make some basic assumptions, how old are you going to be when you retire, how long do you think you are going to live (my recommendation is at least 95 unless there is a compelling reason not to), what do you expect your expenses to be, in today’s terms ( and deduct the income, say a rental property), what capital expenses do you expect ( new car?), what do expect inflation to be, what sort of growth above inflation do you expect from your investments. Using these values you can get a present value of that future expense, and an indication of how much you need to put away each month in order to achieve that.

Recommendations :   My preference is to use an interactive graphic model where you can go through as many different scenarios as is necessary with a client  until you find one that is reasonable, sustainable and affordable. What ever method your advisor chooses, to come up with a scenario and recommendation for retirement be aware that with so many variables there is not just one answer. The variables that you can adjust that will have the biggest impact on the scenario are : reducing your projected expenses at retirement, increasing your monthly contributions or tweaking your portfolio’s asset allocation  

How much of my RA premium can I claim back from tax?
At the moment this is 15% of your non-retirement funding income ( which if you are earning a salary and paying into a provident fund could be very low) BUT this is currently under review and is likely to change very shortly. The new recommendation is that you will be able to deduct up to 22.5/25% of your total income ( not non-retirement funding income) with an annual cap anywhere between R250k and R350k.

Recommendations: Watch for changes to the legislation, your provider or advisor may notify you. You can sign up for our newsletter  which will give you just this sort of information – click here  Sign up[/service]

What happens if I cash in my retirement funds when I change companies?
You will be taxed on the proceeds in terms of the ‘lump sum rules’. These bands change annually, starting with a small (lifetime) tax free amount, then increasing in bands through 18%, 37% and then 35%. The amount you withdraw will also impact on your tax free portion at retirement. This tax may not be deducted off anything else or added to your income tax – it is lost and gone forever.

Recommendations: Before you decide to withdraw your funds, ask your advisor to give you the tax implications and alternatives first. 


When can I 'retire' from my retirement funds?
You can retire from Retirement Annuities and preservers at age 55 in terms of the pensions funds act. Note that you retire from the fund, you don’t physically have to retire from your job. If your broker has increased the age of retirement beyond age 55 on an insurance as opposed to a LISP platform (so he/she can get more upfront commission maybe) you may penalised. If you are still employed at a company that has your retirement funds you will not be able to retire from the fund unless you leave the company even if you are well beyond 55 yrs old.

Recommendations: Make sure you have the flexibility to retire from the fund at any time after 55. 

What are the lump sum tables?
There are 2 lump sum tax tables used for retirement funds, one before retirement and one after. In 2013 the (lifetime) tax free portion before retirement is R22 500, after retirement that increases to R315 000, the tax then increases in bands from 18%, through 27% to 36%.

Recommendations: These change annually so please check with your advisor. If you would like a copy of the latest tax tables  (as supplied by Momentum in February every year) please contact us <a title=”Contact Us” href=”http://kerenga.com/contact-us/”>contact us.</a>.

What happens to my retirement funds if I die?
When you take out a retirement annuity, Pension preserver or a pension or provident fund at work you will be asked for ‘nominees’ – in other words the person you want the proceeds to be paid to. The trustees of the fund will then independently determine who the proceeds should be paid out to (dependents) and take your nominees into consideration. The trustees are under no obligation to payout as per your wishes, and if there are dependents not nominated, the nominees may just get a ‘token amount’ (which can be very small). As a result of this determination ( Section 37 of the Pensions Funds Act) there is usually a delay in playing out these benefits with a year allowed for this investigation. Estate duty and executors fees will not be levied on this amount, and additional tax in either the estate or the beneficiary’s hands will apply depending on the decision made by beneficiaries at the time (cash withdrawal, preservation, retirement).

Recommendations: Pension funds can be a good way to reduce a potential estate duty liability. To speed up the payout of your estate the nominees should include all your dependents. If any of your dependents are minors make sure this is catered for in the will by way of a testamentary trust – avoid having to use the Guardians Fund at all costs.  

What is a compulsory annuity?
When you retire from a Retirement Annuity or Pension fund (not provident fund) then a minimum of 2/3 of the fund has to go towards purchasing a ‘compulsory annuity’ ( unless the amount is less than about R75000). You are not compelled to use the same ‘life’ provider that housed your original investment. This payment can be either monthly, quarterly or annually ( in advance).  
What is the difference between a life annuity and living annuity?
In the very simplest terms a living annuity will only pay you an income while you are alive and there is no residual amount that goes into the estate ( even if you die within a month of taking it out). These annuities have a fixed payout that is linked to the interest rate and can be found in the financial pages of most newspapers. You can opt to have this increase by inflation, but you have no control over the amount paid out, and if the interest rate changes the amount will not. With interest rates at an historical low these annuities are sub-optimal. A life annuity is placed into an investment portfolio of your choice and you can ‘draw down’ on the amount as an income anywhere from 2.5% to 17.5% ( and this can be changed annually) . Any draw down that is more than 6% is going to erode the capital and not allow it to grow to keep up with inflation. When you die any money left over reverts to your beneficiaries.

Recommendations: Properly structured Retirement Annuities backed by a retirement plan are going to be a better option for most people. 

Why not just put my savings in an ordinary investment?
Retirement Annuities ( RAs ) can be a highly effective way to save for your retirement but much of the bad press revolves around the same issues as endowments on insurance platforms – punitive penalties, poor fund choice ad high costs. In addition to the tax deductions you can claim (this amount is currently under review) within the fund no tax is levied on interest or CGT and the dividend withholding tax is rebated back into the fund. These tax breaks within the fund will mean that if you have an RA and a flexible investment invested in exactly the same funds, the RA will have a higher internal rate of return ( as long as the fees are the same). Read more about this HERE.

Recommendations: Use the tax incentives you can get  to boost your retirement funds

What protection do my retirement funds have from creditors or ex-wives?
Your retirement funds are protected from creditors until you retire – with the exception of criminal fraud at your employer w.r.t your company retirement. In divorce your wife is entitled to apply for a portion of your retirement funds but it is essential that this is correctly worded in the divorce decree.

Recommendations: If you are the spouse looking to attach a portion of your husband’s pension make doubly sure the wording is correct. If it is your pension that is being attached – try to settle this amount in another way. If you have a creditor wanting to get their hands on the funds don’t retire from it.  

What info should I put in my Red File?
The Red File should contain copies of all your important documents, contact details, estate plan etc so that anyone can pick up one file and start putting things in motion should you be incapacitated.The contents page and instructions page should be personalised and updated frequently.If you would like us to send you a template for this file please contact us.
What is a platform?
In the simplest terms a platform is an administrative system for investments, making it easier for you to make a variety of investments in one place. Platforms will offer a range of investments and usually negotiate different fees – plus adding their own of course. Perversely the Total Expense ratio of purchasing a collective investment may be lower than trying to do it directly with the investment company. A platform has the added advantage of consolidating reporting. Platforms that have a ‘life license’ can also ‘wrap’ investments like shares for example and make them compliant with the Pension Funds act for example.

Recommendations: If you don’t have a big enough portfolio to get personalised reporting from your financial advisor, consolidating your investments on one platform where possible may make sense.

What is an ETF?
An ETF is an exchange traded fund ( SATRIX is probably the best known in South Africa). An ETF will hold investments and usually trade as a trader fund, in other words they will follow an index without actively trading. Because the ETF is essentially “passive” the Total Expense ratio is inclined to be lower than traditional collective investments ( unit trusts). Unit trusts only trade once a day, ETFs trade through out the day like a share. At this time not many ETF’s are found on platforms and the trading has to be done directly with the investment company and an advisor usually does not earn commission.
How do I choose a platform?
There are a number of factors to consider : Admin fees, choice of funds and reports. Online statement viewing is a useful addition.  
How to interpret the fees, what should I look out for?
When you read your statement or the quote from a LISP platform (and some insurance platforms) you will see that fees are separated out into different categories. First there are upfront fees and ongoing fees. Under upfront fees (which will be deducted immediately) there may be Admin fees levied by the provider (personally I wont use a platform that charges upfront admin fees) and upfront advisor fees. The upfront advisor fees can vary from 0% to 3.5% and is usually related to the amount of work is required to put the investment in place. If you negotiate no ongoing fees with an advisor, it would be reasonable to pay up to 3.5% in upfront fees. Preservers and retirement funds are very time consuming, but a simple flexible investment less so. Ongoing fees will include management fees ( levied by the asset managers of the fund), admin fees levied by the platform and advisor fees and your financial advisor fees ( usually in the range of .25% to 1%).

Recommendation: Get a feel for the different TERs incurred by the different funds on the platform you have chosen.If you want to use an insurance platform make sure you are aware of the fees and more importantly the potential penalties.

What is alpha?
In simplest terms the alpha of an investment is a measure of it’s performance relative to a benchmark. Excess return above that of the benchmark is a fund’s alpha and is a measurement of the ‘value added’ by an asset manager.It is one of the 5 classic measurements use to analyse an investment ( the others are beta ( which measures volatility) , standard deviation, R-squared, and the Sharpe ratio). 
Why do they measure the investment against a CPI plus?
The primary reason for investing funds is to ensure the funds are safe, and where possible at least keep up with inflation. If an investment doesn’t keep up with inflation then it loses capital in real terms. Over the long term the maximum returns that one can expect, after fees, is CPI plus 5-6 %. In otehr words is inflation is say 6%, then the maximum long term return will be around 12%, some years higher, others lower or even negative.
What are the tax implications of the different investments?
In an ordinary flexible investment that hasn’t been structured as an endowment then you will be issued with a certificate detailing the interest accrued, rental income received and CGT due on an annual basis. Some of these can be offset against annual tax deductions. If the investment is placed in an endowment then tax is levied within the fund and the net proceeds will be ‘tax-free’ (a better term is tax paid). Tax is levied at a flat 30% and no allowances for personal deductions are made.

Recommendations: Before jumping into an endowment make sure you have looked at the different tax implications and accessibility.  

What are asset classes?
There are essentially 4 MAJOR asset classes – Equity, Property, Bonds and Cash. offshore is handled separately and has the same 4 asset classes making 8 in total in the average portfolio. On most unit trusts you will also see the split between these 8 classes. Each asset class has it’s own risk and return characteristics. Read more HERE
What does re-balancing mean?
Re-balancing is an exercise done on your portfolio to return it to the asset allocation proportions that is in your strategy, because it is no longer ‘regulation 28 complaint or to reflect a new ‘house view” by your advisor.
What is a switch and what does it cost?
A switch is the term used by platforms when you sell one/many collective investments and replace with a different set of funds. This is usually done when a portfolio is re-balanced, or if a unit trust falls out of favour. Most platforms will allow one or more switches a year, and this cost should be taken into consideration when choosing a platform. While switching funds every five minutes is not recommended, a certain flexibility should be allowed.  If your advisor can do this quickly and online this is even better.
How do I balance risk versus return?
High return investment with a low risk are the holy grail of investing, and don’t really exist. You can however pick funds that historically have done better in this regard than their competitors. Some platforms have tools that allow you to plot risk versus return on a simple XY graph which will show it quite clearly.
What is the efficient frontier?
The efficient frontier concept was introduced by Harry Markowitz in 1952 and is a cornerstone of modern portfolio theory. When you plot risk versus return on a XY graph, the optimal level of risk versus return can be drawn as a curve known as the efficient frontier. Portfolios falling ‘below’ the frontier are sub-optimal.

Recommendations: This is one of the considerations you need to make when choosing funds in your portfolio. If your platform has a small choice of funds, and most of those are their own funds, when compared to the rest of the market they come up short.   

What is the 'Internal Rate of Return'?
Most platforms have the ability to calculate the internal rate of return on an investment, but you will probably have to request it.It is a measure widely used in business to calculate the profitability of a longer term investment and give you a much more realistic rate of return over the period, with all the costs stripped out.
What is an endowment and when should I use it?
An endowment is taxed within the fund at a flat 30% and cannot be surrendered in its entirety for 5 years. They were hugely popular in the past – mostly because they generated fat commissions for brokers who were paid upfront commission on the entire term of the investment – sometimes pushed out to 50 years. If your average tax rate is over 30% and you have maxed out on your deductions, then it might be a long term option for you. Beware of penalties and use a LISP platform if your broker cant get the penalties removed. Endowments make sense for long term investments in trusts that have a flat 40% tax rate.  
What info should I put in my RED FILE ?
Your RED FILE  should contain copies of all your important documents, contact details, estate plan etc so that anyone can pick up one file and start putting things in motion should you be incapacitated.The contents page and instructions page should be personalised and updated frequently.If you would like us to send you a template for this file please contact us. From an investment perspective you need to have a summary of all your investments in the file and brief instructions in the instructions sheet, including your advisor contact details.
How do I find out about my group cover?
Ask your HR department for a benefit statement and member booklet
What should I be looking for?
Group Life cover is usually paid out as a multiple of your ‘retirement funding income’ – which is usually lower than your actual income and should show on your salary slip. Do you have lump sum disability cover? Income Continuation benefit? Dread disease cover/ funeral cover? Do these have a Continuation/Conversion option if you leave the company? Has you advisor integrated these into your financial plan?  
What is the difference between a pension and a provident fund?
The basic difference comes in how they are treated in the pension funds act and income tax act, and this is likely to change soon. From the consumer’s point of view the biggest difference is that with a provident fund you are not obligated to take out a compulsory annuity on retirement but can take the full lumpsum amount. The same lump sum tax rules apply. Free downloadable booklet on Group benefits etc. HERE 
If I can choose an investment fund/unit trust/collective investment, what should I choose?
Ask your financial advisor’s advice as he or she will know the asset allocation of your other investments and can research the alternatives given to you. If you don’t have an advisor here is a basic rule of thumb: If you have 8 or more years to retirement choose the fund with the highest equity exposure or CPI plus 5-7. If you have 5 or less years to retirement it might be prudent to drop this to a CPI plus 3% fund. At the very least, 2 years before retirement you need to get a retirement plan from a financial advisor. Don’t allow the fund to default to ‘cash’m just before retirement and lose potential market growth.
What is a continuation option?
A continuation option is the option to continue with the risk benefits you currently enjoy with the company in your own name (you pay the premiums obviously) without any underwriting. This can be very powerful if you have a previous medical condition that would result in a loading or exclusion if you were to try and get the cover alone. This continuation option is not automatic, so please check. Free downloadable booklet on Group benefits etc. HERE

Recommendations: If your personal life cover has exclusions or loadings, or you don’t have additional cover this can be very useful. The cover usually has to be taken out with the original company which takes much of the element of choice of benefits out of it but could save you thousands.

What is a 'free cover limit'?
All group schemes will have a ‘free cover limit’ below which no underwriting (medicals)  is required. This limit increases with the number of members on the fund ( because the risk is diversified). Once your projected cover goes above this limit you will be asked to undergo medicals in order to access the increased cover.
What if I don't want to do the medicals?
f you don’t go for these medicals your cover will be restricted to the free cover limit.Free downloadable booklet on Group benefits etc. HERE

Recommendations: Discuss how this fits into your personal financial plan with your advisor, if you are in effect ‘paying’ for this cover (section 11w, ‘perks’ tax) and don’t need it then keep it at the free cover limit. 

If I have the choice of contributing more to my pension or provident fund, should I?
You need to have this discussion with your advisor based on your entire investment portfolio. On the pro side of the coin, the fees in group retirement funds are usually far lower than those out in the market for individuals ( I have however come across excessive fees in group schemes). However there are cons. Your choice of funds may be limited, ditto your ability to switch.  You will not be able to retire from these funds before you leave the company.

Recommendations: One personal retirement Annuity, on a LISP platform, even if you are in a corporate environment will make your retirement more flexible – you can delay the retirement from one of the funds if you have ‘part-time income coming in in early retirement.  

If I die while still on a company's payroll who are the proceeds paid to?
Group risk benefits will usually be paid to your beneficiary directly however you will need to check the fund rules as in older products this may be handled as a nominee and not beneficiary (compulsory schemes). Free downloadable booklet on Group benefits etc. HERE

Recommendations: Make sure the beneficiaries/nominees are updated frequently with your HR department

What info should I put in my RED FILE ?
Your RED FILE  should contain copies of all your important documents, contact details, estate plan etc so that anyone can pick up one file and start putting things in motion should you be incapacitated.The contents page and instructions page should be personalised and updated frequently.If you would like us to send you a template for this file please contact us. From a group benefits  perspective you need to have a copy of your latest benefit statement and member booklet in the file and brief instructions in the instructions sheet, including your HR contact person details and  brief description of the type of cover ( Life, funeral etc).
What does it mean to die intestate?
Intestate means that you die without a legal will. This means that the master of the court will appoint an executor and the estate will be distributed in terms of the rules of succession as you have not made your wishes known. proceeds from life policies that should go to a minor child will be given to the Guardian’s  fund to invest and distribute.In short, a very bad idea. Download a free eBooklet on Estate planning and Wills HERE

Recommendations: Irrespective of the size of your estate a will is vitally important. This can be done by a lawyer, Certified Financial Planner or the bank. Do not try to do it yourself unless you are qualified to do so.  

What is the difference between a testamentary and inter vivos trust?
A testamentary trust is initiated in terms of a will (testament), an inter vivos trust is founded while you are still alive. Download a free eBooklet on Estate planning and Wills HERE

Recommendations:  If there is a chance any of your beneficiaries are minors it is imperative to specify a testamentary trust with the conditions under which the proceeds may be distributed to keep the funds out of the Guardian’s fund. 

Should I lodge my will with the bank?
Be aware if you lodge your will with a bank, lawyer or other institution then the executors fees of 3.99% will effectively be not negotiable (see below). It can also take a considerable amount of time. Download a free eBooklet on Estate planning and Wills HERE

Recommendations: Consider nominating a savy friend or family member as the executor and give them the power to negotiated the actual work with a professional independent executor. If your advisor recommends an executor, ensure that any conflict of interest and financial incentives are disclosed. 

What is an executor and what does he/she charge?
An executor is the person that will ‘wind up’ the estate, pay all the outstanding creditors, transfer the assets and payout the beneficiaries. This person will be nominated in the will, but has to be accepted by the Master ( which is not a forgone conclusion). The maximum fee that can be charged by an executor is 3.99% plus VAT. If an executor has been nominated in the will (for example a bank or lawyer) then they will charge the full amount, irrespective of the amount of work involved.If you nominate someone as an executor giving them the power to nominate another executor ( a spouse or child perhaps) then the executor’s fee is now negotiable (and VAT is usually removed too). Download a free eBooklet on Estate planning and Wills HERE

Recommendations: Nominate a spouse or family member as an executor or joint executor giving them the power to appoint a professional executor and negotiate a reasonable rate.Let me give you an real example of the effect this can have on an estate. If the only asset a spouse has in her name is a R10m house which is left to the spouse on her death – then all the executor has to do to effect this is call a conveyancing attorney to effect the transfer (which he will charge for). Simple, however he/she is entitled to charge R399 000 for this simple act. Nice work if you can get it

What is estate duty?
Currently estate duty is only levied on estates worth more than R3.5 million. In terms of section 4q this duty can be aggregated and deferred if the estate is left to a spouse. In other words if the entire R3.5 m estate is left to a spouse, his/her estate duty rebate will now increase to R7m and estate duty will be deferred until their death. For years there has been talk of estate duty being abolished (replaced by ever increasing CGT) but nothing has happened yet. Download a free eBooklet on Estate planning and Wills HERE

Recommendations: The use of usufructs and other complicated mechanisms are no longer required to maximise the 4q deductions to the spouse as these now roll over. 

What effect will CGT (Capital Gains Tax) have on my estate?
CGT will potentially have a greater impact on an estate than estate duty. Capital Gains is the difference between the base cost on 1/10/2001 and the date of sale of the asset or other CGT event (like death). Assets left to a spouse are transferred at base cost and CGT is ‘deferred” until his or her death. Assets transferred to other beneficiaries or a trust have to be transferred at the new base cost after CGT, and the estate pays the CGT. This can cause liquidity issues in an estate. There are rebates for primary homes and on death which your advisor will outline in an estate plan. Download a free eBooklet on Estate planning and Wills HERE

Recommendations: Once the value of your primary home is in excess of R2m and you have other property an estate plan is in order. keep all invoices related to major renovations to your properties ( keep in the RED FILE) as these can be used to reduce the CGT.    

What is donations tax?
In order to prevent the ‘leakage’ of estate duty and other taxes one is restricted to donations to anyone (except charity – treated differently) , including family members to R100k per person. Thereafter a donations tax of 20% will be levied (not coincidentally the same as estate duty). The biggest impact of this is in the formation of inter vivos trusts when founders want to move assets into the trust. This is both a CGT and donations tax event and must be carefully considered. Download a free eBooklet on Estate planning and Wills HERE

Recommendations: The most common way to get round this punitive donations tax in a trust is to create a loan account which can be whittled away R100k at a time.

What should I look out for in my will?
Get your will assessed by a CERTIFIED FINANCIAL PLANNER or lawyer because there are some nasty pitfalls if you have tried to do it yourself or do it on the internet. Is there a testamentary trust for potential minors and  does it give some detail on how and  the proceeds should be paid? Is every page signed by each testator or testatrix and initialed by the witnesses? Are the witnesses completely independent -no beneficiaries, not the author of the will, guardians, trustees or executors? Is there a clause removing the inheritance from the joint or accrual assets of a married beneficiary?.

Recommendations: There are better places to cut corners than your will. Keep it simple but make it legally correct. Don’t try and rule from the grave.  

What are the implications of being married in 'Community of Property' on my will?
In short you will pay double executors fees. One the death of one spouse both estates are combined, and while this will not impact on estate duty the executor can charge the full 3.99% on the combined estate. To add insult to injury he/she will then charge the full amount on the second spouse to die too.

Recommendations:  Make sure the executor’s fee can be negotiated (above)

What are the implications of accrual on my will?
When you enter into an anti-nuptial agreement with accrual you agree that any assets acquired  after your marriage will be split 50-50. Assets before marriage have to be listed and valued and will then be excluded. On divorce the difference in the accrued estates will be determined and the difference used in the divorce negotiations. On death it is potentially much more onerous. If the deceased spouse has a claim on the other’s spouse’s accrual share this has to be settled before beneficiaries are paid. If the estate is left to the spouse then this is not a problem, but if the major beneficiaries are not the spouse, then  there is a large potential problem. Take the following example : Both parties enter into the marriage with zero assets, but during their lifetime one spouse builds up a significant business worth say R100m and the spouse has no assets. The business owner spouse then leaves the business to his children. The surviving spouse is entitled to R50m which has to be provided by the estate or the children. This can cause a major liquidity issue.In the opposite scenario where the business owner is the surviving spouse the he/she will have to settle the accrual claim – usually in cash – causing even more grief and financial strain.

Recommendations: If you are married in the accrual system and considering leaving assets to someone other than your spouse get an estate plan done to find out if there are potential liquidity issues. These can be mitigated with buy-and-sell agreements (and/or policies), or by placing businesses in trusts from the outset.  

How long does it take to wind up an estate?
A simple estate with a decent executor should only take a couple of months. With a poorly motivated executor it can take 2 years. If there are complications caused by accrual shares etc it can take even longer.

Recommendations: Have an up to date estate plan in your RED FILE so your executor knows exactly what he/she needs to do and where the liquidity has been planned. This will cut the amount of work required by an executor substantially.

What info should I put in my RED FILE ?
Your RED FILE  should contain copies of all your important documents, contact details, estate plan etc so that anyone can pick up one file and start putting things in motion should you be incapacitated.The contents page and instructions page should be personalised and updated frequently.If you would like us to send you a template for this file please contact us. From an estate planning perspective you need to have a copy of your latest estate plan in the file in addition to all the important documents related to every aspect of you life from title deeds and income tax returns to invoices used in house renovations.

Sage Leaves

Profiled Funds Profiled Funds
Collective investments, previously known as ‘Unit Trusts’, are used to give investors a diversified portfolio of shares by giving them ‘portions’ of the collective investment.

Because shares are sold usually sold in lots of 100 which would make the equivalent share portfolio very pricey, this gives the average investor the best of both worlds.

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eBooks & Tax Guides eBooks & Tax Guides
Much of the information available on this site is, or will be, available as an eBook or PDF document which you can access from your PC, tablet or smart phone.

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FAQ FAQ
All those frequently asked questions on every topic from Medical Aids to estate planning are available here – and the opportunity to add your own question or submit your own comments.

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