- What are Cognitive Enhancers or Nootropic Supplements and How do They Work? - November 10, 2022
- Longevity - August 31, 2022
- Foucault and Authentic Leadership - August 31, 2022
In part one of our discussion on achieving financial success in the new year, we considered the importance of planning for specific financial goals, having and reviewing an emergency fund, the importance of prioritising paying off short-term debt, and, finally, benefiting from annual tax reliefs.
Review your insurance cover
Insurance cover needs to be reviewed at least once a year to ensure that you are adequately covered and that you are paying the most competitive premiums. When going through this exercise the goal will be to identify if you are over or under-insured.
What does it mean to be over-insured? An important insurance principle is that policy holders cannot profit from their insurance policies should an insurable event take place. A person may have insurance with different insurance companies or have more cover than the value of the asset or income being protected. Should an insurable event take place the full value of cover will not be paid out in full as it will be limited to the value of the lost or damaged asset or your income and unfortunately, no refund will be given for the excess premiums that were paid for the cover that could not be claimed. It is therefore extremely important to regularly assess whether you are over-insured for any insurable risk.
On the other hand, it is also important to make sure that you are not under-insured. The value of assets and your income may change over time due to wear and tear, increase or decrease in demand, or promotions, to name only a few. It is important to make sure that you remain adequately covered, otherwise, an insurable event may lead to a decrease in your quality of life.
Another reason to review your insurance is that you can benefit from re-negotiating premiums. Bundling your home and auto insurance with the same insurer can help you negotiate lower overall premiums. Updating the wiring in your home or adding a new alarm system to your home or car may also lower your premiums since risks are ultimately lowered for the insurer.
Although medical aids are different products altogether, the same principles apply. As life changes, the health cover you need from a medical aid may also change – you may have recently welcomed a baby into your life, which needs to be added as a beneficiary on your plan or the health risks that you may face as you are aging may change, meaning that you need to move to a more comprehensive plan. Make sure that you review your medical aid cover regularly so that you are covered when the time comes for you to claim.
Review your beneficiary nomination on your policies and investments
Life can be a rollercoaster. Maybe this past year brought you the joy of a new baby, or maybe you have had to navigate a difficult life event like a divorce. Perhaps you are now financially responsible for an elderly parent or your child has started their first job and is no longer living out of your pocket. Whatever the situation is, it is important to ensure that your beneficiary nomination reflects those people that are financially dependent on you or that you would want to benefit from your policies or investments.
Beneficiaries can be elected on life policies, retirement products, and even on some investment products. When you pass away, the full benefit value of your life policies will be paid to those beneficiaries that were elected at the percentage specified on the beneficiary form. The benefits of having beneficiaries elected on life policies are twofold. Firstly, it will provide cash, in liquid form, to your beneficiaries since it is not tied in with the rest of your assets that are frozen until your estate is wound up.
Secondly, you will not pay executor’s fees on the value of such benefits since the executor does not administer these policies as part of the estate. Should there not be a beneficiary nominated on a particular life policy, such policy will form part of your estate and can be used to fund costs that are associated with winding up the estate, such as estate duty, capital gains taxes, master’s fees, etc. In the case that the estate benefits from a life policy, the value of such a policy is subject to executor’s fees.
Beneficiaries elected on retirement products, such as your pension or provident funds, are however subject to section 37C of the Pension Funds Act. This section allows the trustees of a retirement fund to determine who will benefit and in what percentages, from your retirement product, by determining who was financially dependent on you before your death.
Why is it then so important for you to elect the beneficiaries on these retirement products, you may ask? For the fact that the trustees start the process by reviewing your elected beneficiaries as it provides them with guidance on who should ultimately benefit from your retirement product. By providing them with this guidance, you can help to have these funds paid out sooner rather than later.
Ensure that your last will and testament is up to date
Planning for death and having a last will and testament in place can be one of the last gifts you can give your loved ones after you pass away. By not having a valid will you leave the responsibility in the hands of the government, which can result in a lengthy and unsatisfying process for those you leave behind.
A shortage of liquid cash assets to cover ongoing monthly expenses and having no say about who benefits from your estate in what ways are also reasons to plan for death rather than avoid the inevitable fact. Unfortunately, it is estimated that as many as 75% of South Africans pass away without a valid last will and testament. Most attorneys, investment advisors, and trust specialists can draft a will for you without any immediate charges, so you have no excuse not to prioritise this as part of your holistic financial strategy.
Following the guidelines discussed in parts one and two of this series can help you prioritise, strategise and plan your holistic financial roadmap that will ultimately help you achieve financial freedom. It is, however, a moving target that changes as your life goals and circumstances change, and therefore understanding why and how to review all these aspects cannot be emphasised enough.