Don’t under-estimate the worth of the non-breadwinner

Many people believe that only the family breadwinner needs to have life, disability and severe illness cover. This view is fundamentally flawed, a financial planning professional says.

Craig Torr, director at Cape Town-based financial planning practice Crue Invest, says that just because the stay-at-home partner does not earn an income does not mean the family would not suffer financial loss if that person were to die or become disabled.

“According to our financial planning principles, we believe in preparing a joint financial plan for both spouses – irrespective of who works, who doesn’t, or how much each earns,” Torr says. “Regardless of income, qualification or career, the couple is running a joint household and is jointly responsible for the financial future of the family.”

Torr takes as an example a family of four, where the wife is the sole breadwinner and, by mutual agreement, the husband is a stay-at-home father to the couple’s two small children. The natural, and correct, assumption is that the wife would require assurance in the event of her own death or disability, Torr says. If she were to die, she would need her life cover so that  her husband could  maintain the family’s standard of living , invest for the children’s education and fund his retirement. If she were to become disabled, she would need her disability cover to pay her a monthly income until she reaches retirement age. And if she were to suffer a debilitating illness, she’d probably also require lump-sum severe illness cover to provide capital to cover the additional expenses.

“However, many couples fail to ask the question: what would happen to the working partner and children if something happened to the stay-at-home partner – in this case, the father?” Torr says.

A  host of functions  would have  to be replaced, he says. The stay-at-home parent’s job description is likely to include performing household chores, grocery shopping, paying and managing  domestic workers, lifting children to and from school and extra-murals, liaising with schools and teachers, supervising homework, and preparing meals and school lunches.

“The reality is that a full-time father might not earn an income, but he does work. His role is the most important job on Earth,” Torr says. If the husband were to die, questions the breadwinner wife would need to consider are:

• Would I have to hire an au pair or a child-minder to take care of the children in the afternoons?

• Would I need to hire a tutor to help my children with homework?

• What would happen during school holidays? Would the children go into  holiday care, or could I rely on other members of the family to look after them?

• Would I need to hire a domestic worker (or increase domestic help) to prepare meals ?

• Would I consider cutting back on my hours of work in order to spend more time with my children?.

• Would I consider having my parents (or in-laws) move in with me to assist with the children?

Torr says: “Our society, in general, undervalues the role of the stay-at-home-parent, and this is never more evident than  in the field of financial planning. In the words of GK Chesterton, ‘How can it be a small career to tell one’s own children about the universe? How can it be broad to be the same thing to everyone and narrow to be everything to someone? No, a [stay-at-home parent’s] function is laborious, but because it is gigantic, not because it is minute.’”

The reality is that the loss of a stay-at-home parent is greater than anyone can  quantify, and you need to consider risk cover for that person too, Torr says.

Needs-matched cover for stay-at-home parents

Schalk Malan, the chief executive of life assurer BrightRock, says although his company is not the only provider to insure stay-at-home parents, its needs-matched approach to life and disability assurance makes it well suited to do so.

“With BrightRock’s needs-matched product structure, disability and income protection cover for a stay-at-home parent can be uniquely tailored in terms of cover amounts, premium increases and pay-out structure to meet the family’s household, childcare, healthcare and debt needs. Unique features include the ability to choose between a lump sum and a recurring income at the point of claim, when the family better understands the stay-at-home parent’s prognosis and their financial needs. Families can also buy additional cover or change cover when their needs change, without medical underwriting.

“BrightRock will calculate the stay-at-home parent’s ‘income’ at a maximum of half of the working spouse’s income, and maximum rand limits apply. Income-earning clients who choose to become stay-at-home parents, take time off work or take extended maternity leave will keep all their BrightRock cover in force at their existing cover amounts for up to 12 months. In both of these scenarios, clients will continue to have access to the additional features of our product offering, which enables them to change their cover as their needs change.

“We believe it is worth protecting income for stay-at-home parents, given the role they play in families’ financial well-being,” Malan says.

This article first appeared on Saturday, 1 July 2017 in the Personal Finance section of Independent Newspapers (The Weekend Argus, Pretoria News Weekend, Saturday Star and the Independent on Saturday), as well as IOL.co.za. Click here to read the original version.

The Anatomy of a Scam

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When it comes to investing your hard-earned money, beware of any scheme that seems too good to be true. Because the truth is, it probably is, as many people discover to their cost. Here’s one real-life example.

By Maya Fisher-French

There are so many rogues out there using charm and manipulation on desperate people looking for better returns. Tammy is one such victim and she kindly and bravely, shared her story in the hope that it acts as a warning to those who still do not believe that when it seems too good to be true, it really is.

“I really never thought it would happen to me, I thought I was fairly financially astute. How wrong I was,” Tammy says about her experience of being fleeced to the tune of hundreds of thousands of rands in a Ponzi scheme.

As with most schemes, it all started with a referral from a family member. “My mother one day started telling me how a very good family friend of ours was making a lot of money off an investment.”

Both Tammy and her mother had money invested in unit trusts, but the returns the friend was getting were so much better. Too good to be true – as it turned out.

The family friend in question had a neighbour who claimed to be a futures trader. “Our friend had given this trader almost a million Rand and had been receiving monthly payouts of around 19% a year on the investment – that was just in interest not the capital. We all thought, ‘what a find!’ and invited him to our home. He sat in my lounge in my humble apartment and met my kids. He was informed that I was giving him some of my life’s savings. He understood what this R150 000 meant to me,” says Tammy.

Her mother had told so many of her friends about this great ‘Futures Trader’ that collectively they had invested around R2.5-million.

It took time to receive any investment documentation and Tammy and the other investors were told to leave the investment to grow. They were also told that if they needed any of the money soon he could not guarantee where the market would be and they could incur losses.

This is fairly normal for any market-related investment as markets can fall over the short term, but it did not tie in with his story of providing a 19% per annum income return as initially suggested.

Although Tammy did receive some money from time to time, she started to feel uneasy. But then after two years of no returns they started to suspect something was seriously wrong.

“The rands began to drop and we realised we could not get hold of this guy. He never returned our calls, he would then return the calls but be in a meeting so couldn’t talk. Then we would email him with notices wanting our money back.”

From time to time he would give them a small carrot in the form of a small cash payment. “We would cling to this gesture of goodwill because we did not want to fully acknowledge that we had given our precious savings without any proof or finding out that this man was who he said he was. We went blindly on trust. It was such a wonderful feeling to trust, but so awful to be betrayed.”

Tammy also had to acknowledge the role of their good family friend. He was at the top of the scheme and had been the bait, with his initial payouts, which had caught the rest of them because they trusted him.

“Once we realised the brutal truth, our money was gone. Then began the frantic attempts to recover it, throwing good money after bad, paying lawyers to investigate which all cost more than it was worth.”

Only at this stage did Tammy do the research she should have done in the beginning. She contacted the Financial Services Board (FSB) and discovered the trader was not registered.

All she had was his ID number which was of no use. The bank they had deposited the money into was not interested that their client had committed fraud. “The fraud division would not even return my calls,” says Tammy.

Eventually Tammy realised she had to write the money off. She was at least in a position where she was still relatively young and still earning an income, but the same was not true for other people in the group. “Some had invested all their life’s savings. What kind of heartless person could do this?”

Her last act was to report the man to the police. It appeared a hopeless task. “I had already phoned all the relevant crime divisions for white-collar crimes in the country, but no-one knew the correct process or procedure to lay a charge against this criminal.”

Tammy then went to her local police station, where it was a similar story: no-one seemed to understand the crime that had taken place. “I must have stood in the police station for an hour trying to explain my situation. Eventually they gave up on me and I went home.”

Fortunately, in a conversation with a community leader Tammy was given the name of a senior officer at the police station who advised her to get the whole group of investors together to lay a charge under one case number. He told her that the larger the sum defrauded, the more likely it would be viewed as a fraud case and investigated at a higher level.

Tammy heard nothing for about 18 months, then out of the blue she received a call from an advocate who told her the man had been prosecuted and had reached a settlement.

The agreement was that if the complainants were willing to accept the terms they would each receive R100 000 followed by monthly amounts until the debts were repaid. So far he has kept to his agreement.

“What a journey this was, but my message to anyone who is scammed, is don’t just give up. Report the matter. Justice may take its time, but it does work.”

Tammy has been extraordinarily lucky ‒ partly due to her tenacity. Very few victims ever follow through or ever see their money again. 

How to spot a scam

They are not widely advertised on mass media platforms. They rely mostly on word-of-mouth by usually using a few people as “bait”. The early investors receive “too good to be true” returns and then convince other people to join.

The returns promised are always well above what you would expect from a normal investment but when the investment returns do not materialise, there is always some clause in the documents that says “these are projected and not guaranteed” even though it was sold as a guaranteed or low-risk investment.

They are not registered with the Financial Services Board or the South African Reserve Bank, and are not authorised financial services providers. Promoters or brokers are not registered with the Financial Services Board as qualified brokers.

The initiators are not accountable to anybody and can disappear at anytime.

The schemes do not have a corporate organisational structure (CEO, directors).

They do not provide any real proof of investment of your money (ie. investment certificate); sometimes they will issue you with a piece of paper with a logo, but this means very little.

They may offer a guarantee to get your money back if you are not happy with the investment. This guarantee is nothing but words on a piece of paper. Anyone can promise you a “guarantee” – it means absolutely nothing unless there is a bank underwriting it.

* Maya Fisher-French is an award-winning financial journalist with a flair for cutting complex money matters to their core. Find out more on  mayaonmoney.co.za. Maya on Money, Your Money Questions Answered, is published by NB Publishers.

This article first appeared in The Comet, an online platform by BrightRock, provider of the first-ever life insurance that changes as your life changes.

Get Ready for the Holiday of a Lifetime!

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After a year of sweat and toil, you’ve earned your holiday break. So don’t let the planning for your holiday make you sweat and toil even more. Plan well ahead, and you’ll be able to enjoy every moment of your well-deserved getaway.

By Maya Fisher-French

I recently returned from an overseas trip that I started planning nine months ahead of time. I used the time to plan, budget and make sure that when I returned from my well-deserved break, there would be no scary credit card bills to deal with.

One of the benefits of planning ahead is that you are able to spread your payments over time. This is how I made sure my holiday was booked and paid for before I got on the plane.

 

Nine months before travelling: book your airline ticket

The earlier you book your air-ticket the cheaper it is. I used travelstart.co.za which gave me the best price comparisons. I booked through my credit card for convenience and also for the free travel insurance.

Another benefit of booking with a credit card is that you are also covered if the airline goes bust under a charge-back where the transaction can be reversed if the goods or services are not delivered.

As I already had funds to cover the ticket, I transferred the money into my credit card. Ideally you want to have saved the money to pay for the tickets, but if you have to spread the cost, make sure it’s only over one or two months.

 

Eight months before travelling: start putting money aside for spending

I calculated how much day-to-day spending money I would need and started building that up in my credit card. I don’t get foreign cash before leaving on an overseas trip as I just draw cash when I arrive at the airport , although this once did backfire when the ATM was offline.

I also don’t find the pre-paid currency travel wallets that cost-effective. But my main issue is that for both foreign cash and travel wallets you have to fill in forms with the bank and provide your air-ticket and passport – it’s an unnecessary additional hassle.

The risk is that our currency takes a nose-dive during your trip, but it could also strengthen. I take the view that I have already spread my risk by paying for my trip over nine months.

 

Six months before travelling: book your accommodation

Now that your ticket is booked and paid for, you can pay for your accommodation. Airbnb has made travel so much cheaper but I also used websites like booking.com and tripadvisor.com to get realistic reviews on places to stay.

In some cases you can just pay a deposit but I opted to pay the accommodation in full (refundable if I cancel before a certain time) as this took away currency risk.

With the rand so volatile I used an opportunity of rand strength to effectively peg the cost of accommodation. It also means that six months before I leave, both my accommodation and flights are paid for.

 

Three months before travelling: book car hire/transport

Again this is about spreading out the cost of the overseas trip and also taking advantage of rand strength. If you are using reputable global car rental agencies, you can comfortably book online and make payment. There is a refund option if you cancel in time.

I always opt for the full insurance package with no excess. It is a lot more to pay, but once when a driver went into the back of me while I was travelling abroad, I was very glad I didn’t have to worry about handling the excess in a foreign currency!

I also included wi-fi in the car – this allowed me to use my phone for navigation and generally provide free wi-fi.

I also booked a train trip online with a great online booking service, loco2.com, which covers and compares all modes of transport around Europe and the UK.

 

One month before travelling: book your tourist activities

Most major tourist sites allow you to book tickets online and this way you also get to jump the booking queue. Many top attractions have timed entry tickets which can actually sell out weeks in advance, so it makes sense to get in early.

A month before you travel you should already have a good idea about your itinerary, since you’ve already been researching for eight months!

 

A week before you travel: sort out insurance

You will receive free travel insurance on your credit card, so make sure you have the relevant contact numbers on your phone. Also make sure you know what the insurance covers and whether it is worth topping up.

Most free travel insurance is fairly basic and has limits to the cover provided. Make sure you read the fine print, such as the fact that you are not covered if you are 75 or older or for pre-existing health issues.

Top-up insurance provides higher levels of cover, including cover for pre-existing conditions, no/less excess payable on claims and also additional benefits such as cover for loss of baggage, travel documents and cash.

Also inform your medical scheme that you’ll be travelling abroad. They will cover medical expenses up to a certain point and may also offer free travel insurance, which I signed up for.

This is also a good time to inform your bank you will be overseas, as any transactions on your card outside of the country may trigger a fraud investigation and you could find your card has been stopped.

With careful planning and budgeting, an overseas trip does not need to turn into a financial liability.

 

*Maya Fisher-French is an award-winning financial journalist with a flair for cutting complex money matters to their core. Find out more on  mayaonmoney.co.za. Maya on Money, Your Money Questions Answered, is published by NB Publishers.

This article first appeared in The Comet, an online platform by BrightRock, provider of the first-ever life insurance that changes as your life changes.

Life cover isn’t only for the healthy

You don’t have to be in perfect health to take out life cover, but you may pay a higher premium or have specific exclusions applied to your policy if your risk of claiming is higher than average, writes Patricia Holburn

PersonalFinance

If you are worried that poor health may disqualify you from taking out life, disability or critical illness cover, take heart: life assurers won’t automatically decline your application, but will assess your individual risk factors and decide what cover to offer and the premium.

Less than two percent of applications for cover are rejected, Dr Marion Morkel, the medical officer at Sanlam, says.

“We realise people need long-term insurance, because it protects their financial interests. We are here to offer that service. We decline reluctantly,” Dr Dominique Stott, the executive of medical standards and services at PPS, says.

When you apply for life assurance, the provider assesses the likelihood that you will claim for specific benefits. This assessment is based on the information you provide in the application form and on medical tests or records.

If the risk factors for developing a disease are present, or you have had a serious illness, such as cancer, your case – known as a non-standard life – will be individually assessed to determine the benefits you can be offered and at what rates.
An assurer has several options if you are a non-standard life, Schalk Malan, the executive director of actuarial at BrightRock, says. These include premium loadings and excluding certain activities, health conditions and benefits from being covered.

Cover at a higher rate

“A loading is an additional cost applied to your premium when a life assurer believes that, statistically, you are more likely to claim than the average person,” Hayley Taylor, the head of underwriting at Hollard Life, says.

Loadings are a certain percentage above the rate for clients with a standard rate profile, usually expressed in increments of 25 percent, Morkel says.

Loadings of 50, 100 and 200 percent are common.

“Every company determines the level or threshold at which they would not offer above this rate. This threshold is usually determined by affordability. It makes no sense offering a product that is completely unaffordable and that, over time, costs more than the potential benefits embedded in the products offered,” Morkel says.

She says that, as general rule, an application is declined when the rate is three-and-a-half times the basic premium.

Gareth Friedlander, the head of research and development at Discovery Life, says Discovery generally declines policies when the mortality risk is greater than 400 percent of the standard rate.

The cost of a loading is not just the higher premium; there is also an opportunity cost. For example, you will have less money to contribute to retirement savings if your life cover is expensive. However, you have to weigh up the extra cost against the financial risk of not having cover at all.

Exclusions

“An exclusion is applied to your policy if an assurer determines that the risk of you making a claim related to a medical condition, dangerous hobby or risky occupation is too great. In that case, an assurer would provide you with cover with no additional cost, but let you know upfront that it won’t pay a claim related to that specific condition, hobby or occupation. Exclusions can be permanent or for a specific period of time,” Taylor says.

You may be concerned that excluding claims for certain conditions negates the point of having cover in the first place, but Taylor disagrees.

“Exclusions are often very specific, which means they limit your ability to claim as little as is reasonably possible,” she says.

Malan says: “We try not to prejudice the client against injuries that would have occurred irrespective of the condition. An example of our approach was where we had a client with an existing back condition that resulted in an exclusion on the existing back ailments. The client sustained a new injury to the back in a car accident, and, as a result, the cover paid out for this injury, as it was in no way a result of, or aggravated by the existing condition, and the exclusion did not apply.”

Individual risk assessment

Because each non-standard life is assessed individually, there are no set rates for certain conditions. An assurance company will be able to tell you what benefits it will offer once it has assessed your application.

“Rates differ from case to case and depend on numerous factors, including age, risk factors and what type of cover is applied for. Insurers are very individual in their treatment of non-standard lives,” Hesta van der Westhuizen, an advisory partner at Citadel Wealth Management, says.

In her experience, Van der Westhuizen says life companies have become more willing to consider offering cover to clients who are not in perfect health, or who are at risk of developing a condition, or who have suffered an illness.

Stott uses the example of a person who had a minor heart attack five years ago. Since then, he has followed treatment and lifestyle programmes to reduce his risk factors – for example, controlling his cholesterol and weight. An underwriter would take this into account when assessing his risk, and although it is unlikely that he will be offered cover at standard rates, he is likely to be offered cover with a loading on his premium, Stott says.

The principles are similar where an applicant had cancer, but is now in remission.

“The underwriter would need to assess the long-term outcome (which is key to the decision-making process) based on various pieces of supporting information, like the type and stage of cancer at diagnosis, type of treatment received and time elapsed since completion of treatment,” Dr Philippa Peil, the chief medical officer at Liberty, says.

The type of treatment is also important in assessing risk, because certain treatments for cancer have long-term side-effects that increase the risk of developing other conditions, such as heart disease, Stott says.

Some assurers will provide cover for certain types of cancer if the remission period has been longer than two years, whereas others require remission of five to seven years before they will consider an application for cover.

If the risk factors for developing a serious illness are present, your risk and rating will be assessed based on the information provided.

Taylor cites the example of a 40-year-old man who has high cholesterol, a family history of high cholesterol and a father who suffered a fatal heart attack before the age of 50. This would place him in a high-risk category, and an assurer would apply a loading to his premiums for life, critical illness or disability cover.

But there are cases where the presence of risk factors does not mean that the risk is higher. Dr Morkel uses the example of breast cancer.

“If we are aware that a female applicant has a strong family history of breast cancer as a result of a specific gene mutation, this would place her in a sub-standard rates pool. However, on closer inspection, we discover that she has tested negative for this gene mutation and she has regular breast check-ups, all of which have been normal.”

These are regarded as merits that would change the initial risk assessment, she says.

Reviewing a premium loading

Most life assurers are prepared to review premium loadings and exclusions if there has been a significant change in your health, Van der Westhuizen says. This includes evidence that your current state of health is not as it was assumed to be when you were assessed initially, or that your condition has improved – for example, you had excessively high blood pressure, but it has been brought under control.

Some assurers may require you to monitor your condition, while others have programmes that are designed to control your medical condition.

Friedlander says Discovery Life will soon introduce a Managed Care Integrator that will enable certain policyholders to reduce and ultimately remove their premium loadings if they manage their health conditions via a managed-care programme provided by Discovery Health or Vitality. However, loadings for certain conditions – for example, coronary artery disease – are not reviewable, he says.

If your policy has a loading or exclusion, ask your assurer or financial adviser when and under what circumstances it can be reviewed. Remember, that if you have to undergo a medical test, the cost is likely to be for your account.

Should you try to obtain a lower rate if your premium has been loaded?

Van der Westhuizen says that, when you apply for cover and have to undergo a medical test, the results are stored in a central information register that is accessible to all assurers. Therefore, all life assurers will make similar decisions about the premium charged.

Loadings are pretty standard across the industry, Carina Knill, a financial planner at the Hereford Group, says.

Malan, however, believes it is worthwhile to shop around.

He says there are providers that use the latest needs-matched pricing technologies to better match cover to clients’ needs and deliver more value – an average of about 40 percent more cover per premium rand.

“This saving extends to non-standard lives, and is perhaps even more important where loadings impact on traditional policies, as efficiently priced premiums can serve to negate or reduce the impact of loadings significantly,” Malan says.

  • This article was originally published in Independent Newspapers and IOL.co.za on Saturday, 1 October 2016. Click here to view the original version.

Severe illness cover plays catch-up to medical advances

One type of assurance policy that needs constant revision, by both you and your assurer, is severe illness cover. You need to know exactly what conditions fall inside and outside the policy net. LAURA DU PREEZ reports on what you need to know about your cover.

Independent

The devil is in the detail when it comes to severe illness cover, and the details are constantly changing, which can leave you feeling powerless when choosing a policy or deciding whether or not to accept enhanced cover on your existing policy.

Medical advances and increasing longevity are making severe illness cover an essential part of your protection against the financial shocks that can arise when you suffer a serious illness or medical condition, such as a heart attack, cancer, stroke, Parkinson’s disease or dementia.

Severe illness cover plugs financial gaps created when you need to make lifestyle adjustments, such as slowing down your career, cutting back on your responsibilities at home, or employing someone to help you, or when you incur expenses related to your condition that are not covered by your medical scheme, such as adjustments to your home or rehabilitation costs.

A good medical scheme option, possibly with gap cover, should meet most of your medical expenses, and an income protection policy should cover you in the event of temporary or permanent loss of income.

Severe illness cover typically pays out a lump sum if you are diagnosed with a condition listed in the policy.

The high probability of claiming for an illness over your lifetime makes the cover relatively expensive, and the range of illnesses that can be identified at an early stage continues to grow.

When choosing the most suitable cover, or deciding whether to upgrade, you are likely to find yourself grappling with two concepts: the definitions and number of illnesses covered and the existence of a catch-all clause.

Number of illnesses covered

When severe illness cover was first introduced, it covered only four conditions: heart attack, coronary artery bypass grafts, cancer and stroke.

Most life assurers now cover many more conditions, although traditional assurers, such as Old Mutual, Liberty and Sanlam, say that 70 percent or more claims are still for the four big illnesses.

Old Mutual’s Greenlight policy covers 68 severe illnesses, 16 mild illnesses and 29 severe illnesses specific to children, and nine of the severe illnesses are now also covered when diagnosed early.

Nicholas van der Nest, the director of risk product innovation at Liberty, says Liberty covers more than 150 conditions at various levels of severity, in 31 categories or types of illness. There are options to include illnesses specific to women and children.

Petrie Marx, the product actuary at Sanlam Risk, says Sanlam’s comprehensive option covers 34 illnesses in addition to the big four, while its core option covers the big four only.

Gareth Friedlander, the head of research and development at Discovery Life, which covers about 300 conditions, says its claims statistics show that 45 percent of claims submitted to Discovery are for illnesses other than the big four.

BrightRock’s executive director, Schalk Malan, says it’s product covers 318 illnesses.

Friedlander says that the number of conditions can be misleading, because a single condition can be listed multiple times with different levels of severity.

Marx agrees and says the definition of one claim event in Sanlam’s policy could include a number of separate claim events listed in another assurer’s policy.

He says Sanlam’s current philosophy is not to cover a long list of diseases, of which some are very rare, or of a very low severity, but to provide excellent cover for the most prevalent dread diseases.

Sanlam’s offering is, however, under review.

Assurers may also pay out different percentages of the amount for which you are covered, depending on the severity of the illness.

In an attempt to help you to understand the different levels of cover, life assurers that belong to the Association for Savings & Investment South Africa (Asisa) have committed to using a standard disclosure grid that shows how much they pay at four different severity levels if you claim for the four main severe illnesses. You should check this grid and be aware that severity levels also apply to other conditions.

Medical advances have resulted in the early diagnosis of severe illnesses, including cancer, which can now be detected and treated at what is known as stage 0.

Life assurers are upgrading their cover to include payment if you are diagnosed early – often at only a percentage of the sum for which you have taken out cover – but this typically means a higher premium.

Living with illnesses detected at an early stage can still prove costly, but your chances of surviving without longer-term effects are greater, and this should influence your decision on whether to pay more for improved cover.

If your assurer improves your cover, including more illnesses or cover for early diagnoses, you may be offered an upgrade at a higher premium and will have to weigh up the cost versus the benefits.

Catch-all benefits

Many life companies boast that their policies include a catch-all clause, which ensures that you are covered if you suffer from any illness not listed in the policy that reaches a predefined level of severity. This provides cover for illnesses not listed in your policy and future undiagnosed illnesses, but typically only if the illness is quite severe.

Malan says that if a catch-all clause did, in fact, cover all illnesses, life assurers would not have to list any conditions in their policies. He says you need to know what level of severity will trigger the benefit. For example, you must be bedridden or fail an activities of daily living test.

BrightRock has a catch-all clause under each disease listed in the policy. For example, if the functioning of your heart deteriorates to a certain extent, or your mental capacity reaches a stage where you fail a standardised mental test, you qualify for a benefit.

Friedlander says Discovery’s test measures how capable you are of performing certain activities of daily living to determine whether you will receive a benefit for a condition not listed in the policy.

Marx says Sanlam’s catch-all clause determines whether you qualify for cover based on the extent of what is known in the industry as whole-person impairment.

Jenny Ingram, the head of product development for fully underwritten products at Momentum, says Momentum’s catch-all clause will result in a payout if your whole-person impairment is regarded as being more than 35 percent.

She says a catch-all benefit category may not always protect you if you suffer from a condition that is discovered after the inception of the policy.

Last year, Momentum introduced what it calls the Breadth of Cover Guarantee, which guarantees a payout of up to 20 percent for any condition that is not listed in a Momentum Myriad policy but which is defined in a severe illness policy of any life assurer that is an Asisa member.

Ingram says this feature aims to eradicate the need to count the number of illnesses or claim events in a Myriad critical illness policy.

Van der Nest says Liberty’s catch-all clause applies only to the conditions not specifically listed in the policy. Any illness specifically excluded – for example, congenital blindness – will not be considered under the catch-all definition, irrespective of its severity.

You may be asked to upgrade your policy

As medicine advances, severe illness cover is advancing and you, as policyholder, are likely to get a letter from your assurer at some stage advising you of an “upgrade” of your policy.

Life assurers say they will upgrade your cover to include new illnesses and medical definitions retrospectively without asking you for a higher premium where these upgrades do not have a big cost implication for the assurer.

Where benefits are upgraded significantly, you will be given the opportunity to upgrade your cover for an increased premium. Typically, for a limited period only, you will be able to upgrade without what is known as “underwriting”. This means the assurer will offer you the increased cover as long as your health and other risks are substantially the same as when you took out the cover. If you do not take up the offer within the window in which it is offered, but decide to do so later, full underwriting with medical tests will apply.

Petrie Marx, the product actuary at Sanlam Risk, says a change to a benefit is not always just to add health events for which you can claim; it can also be an increase in the amount paid out for an event that is currently covered or a change to the definition of a current event.

He says other product features can also be added or changed, such as the survival period linked to a benefit or whether, after an initial claim, you can claim again for an unrelated illness.

There can also be limitations on what is included in the catch-all clause (see the main story) while other, less severe conditions may be included in the general upgrade, Marx says. He says Sanlam has upgraded its cover only once in the past five years.

Gareth Friedlander, the head of research and development at Discovery Life, says Discovery has upgraded its cover several times without increasing premiums, and has increased premiums only when new benefits have been introduced. For example, Discovery introduced a lifetime benefit providing payments of up to twice the insured amount for certain illnesses in line with their duration and their impact on your life.

Nicholas van der Nest, the director of risk product innovation at Liberty, says Liberty’s policies include a feature that ensures you are covered if you require the latest procedure or diagnostic technique for a particular severity level of illness, and this has made it necessary for Liberty to continually update its definitions.

Jenny Ingram, the head of product development for fully underwritten products at Momentum, says Momentum Myriad has upgraded its cover on its severe illness policies three times in the past five years. Two of these upgrades were automatically applied to clients’ policies at no additional cost and one involved a small additional cost.

In 2014, Old Mutual upgraded its severe illness cover on its Greenlight policies, adding 34 illnesses, child-specific illnesses and nine early diagnoses, and offering a non-underwritten upgrade for a 20-month window period.

Inus Havenga, a Greenlight risk specialist at Old Mutual, says the upgrade definitions made it easier for policyholders to claim, and in some cases the upgrades required a 20 to 30-percent premium increase.

Havenga says the upgraded policy will pay out faster for conditions such as stroke. Early cancer diagnoses now qualify for a 15-percent payout and the balance is paid out if the disease progresses.

BrightRock’s executive director, Schalk Malan, says BrightRock recently upgraded its policies because it introduced a new trauma benefit that guarantees a payment if you are treated for any trauma.

If medical advances define new illnesses, he says, you may still qualify for a benefit payout under a catch-all phrase if your illness is sufficiently severe, but there is a risk you won’t be covered.

He says if affording a premium increase is a problem, you should look at how efficient your life cover is at meeting your needs. By reducing inefficiencies, you may be able to afford the higher premiums. For example, when debt such as your housing loan is paid off, you may be able to reduce your life and disability cover in favour of severe illness cover, which is important to have when you get older.

Evaluating Upgrades

Malan says to evaluate new cover, ask your assurer or financial adviser the following:

  • Name five conditions that will now be covered that were not covered before. Then check if any of these are familiar to you or are conditions you are worried about.
  • What other assurers cover these conditions and at what price?
  • If one assurer’s cover costs more, why is this?

Don’t forget that partial payments for different severity levels, whether cover can be reinstated for future claims, and whether or not the cover is for a term – for example to your retirement age – or for life, will make a difference to the cost.

And some policies include other benefits such as that offered by Momentum, which gives you ongoing payments after you have contracted a severe illness, or a longevity enhancer payment at age 80 if you have never claimed before.

Marx suggests you also compare the premium on an upgrade offer to the cost of an entirely new policy.

* This article was originally published in the Personal Finance section of the Saturday Star, The Weekend Argus, The Independent on Saturday and Iol.co.za.  

 

If You Value Your Children, Teach Them the Value of Money

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The biggest gift we can give our children is not that brand-new smartphone or a luxury holiday by the sea. It’s an understanding that learning to look after your money is a legacy that will last a lifetime. By Maya Fisher-French

When you become a parent, you are faced with the reality that you have to form a value system within which you will raise your children.

In a world that has become increasingly materialistic and where people are judged not on the content of their character, but on their exterior image, how do we raise children to be financially sensible and to appreciate how much they have?

Upon hearing that I was buying a cellphone as my son’s birthday present, an acquaintance asked me “are you getting him an iPhone”? No, I am not buying my 16 -year-old son a R13,000 phone!

The reality is that some of his friends do have iPhones, but some do not. My son is not particularly brand conscious so it is not an issue, but if it was, that is the sort of thing he would have to buy himself.

If I raised a child who believed that his whole social well-being depended on the type of cellphone he had, I would have failed my own value system.

Need vs Want

Then again, my younger son told me that he “needed” the latest PlayStation because the game he played at his friend’s house is only available on that platform and not on his Xbox.

I just laughed and said: “Really? Need?” Fortunately I did not launch into the “you spoilt child” speech that was forming in my mind because my son understood exactly what I meant. He understands the difference between “need” and “want” and why that matters.

I have found that the best defence against so-called peer pressure and children’s demands is to bring them into the real world when it comes to money.

Most children have no real idea of what things cost relative to the income coming into the family. They also have no idea of how much it costs just to live each month!

I don’t have all the answers and only time will tell if the financial education I impart on my children will bear fruit one day, but I have formed some sort of plan and value system and so far my children seem to be on board.

It’s okay to talk about money

We talk openly about money and finances. My children know we have a budget and what we are budgeting for.

For example, my sons know that this year our goal has been to replace our old car (and they know that we only buy cars for cash) so other luxuries will take a back seat.

We set limits on how much we will spend in total on birthdays, including the gift and party, and only pay for one additional extra mural a term, so they have to choose carefully which extra murals they want to do.

They are hardly deprived, but setting limits creates the awareness that money is a finite resource and they have to make wise decisions on how it is spent.

The best way to learn is by doing

My children received pocket money from a young age, and through this they learnt to save up for things they wanted. Probably the best lesson they have learnt is that by the time they have saved for the item, they no longer want it – their interests are short-lived.

As a result they have more money saved than they planned. As adults, too often we are still paying off our credit cards long after the enjoyment of the new purchase has faded.

What children really want is financial security

Living beyond your means in order to give your children a lifestyle you did not have, is not a gift. It is a burden.

Believe me, I was raised in a household full of financial stress so I know that children can feel the stress in a household and it will create negative money memories for them so that in adulthood they may inadvertently repeat the pattern.

Showing your children you are in control of your finances is the best way to make them feel safe. Share with them how money in the household is allocated and allow them to have some input into the budget allocations.

It will make them feel empowered and also make it easier to have the conversation around “wants” and “needs” and how they can work towards their “wants”.

Part of that security is making sure I have sufficient insurance in place to provide for them if I am unable to contribute to the family financially. I have also worked at putting away money for my retirement so that I do not have to depend on them in old age.

Leaving a legacy

My father died when I was still young and we were left in financial dire straits. There was certainly no inheritance or financial legacy, but I did still receive a good education.

That was invaluable and has allowed me to build my own future. We have one overriding financial priority when it comes to our children: providing them with best education we can afford.

Afford, however, does not mean taking on debt or neglecting our savings; it means other financial sacrifices like not driving new, financed, cars.

* Maya Fisher-French is an award-winning financial journalist with a flair for cutting complex money matters to their core. Find out more on  mayaonmoney.co.za. Maya on Money, Your Money Questions Answered, is published by NB Publishers.

* The opinions expressed in this piece are the writer’s own and don’t necessarily reflect the views of BrightRock.

This article first appeared in The Comet, an online platform by BrightRock, provider of the first-ever life insurance that changes as your life changes.

How Your State of Mind Defines Your State of Money

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The way we think about money, and especially, the way we don’t think about money, can have a huge impact on the way we live our lives. What do you need to do to move from being a “survivor”, struggling with your everyday finances, to becoming a “master” of material matters? An intriguing new book reveals all. By Maya Fisher-French

Someone recently related a story to me about a member of his community who had fallen on hard times and had lost everything. He had gone from being an ultra-wealthy businessman to struggling to make ends meet.

He had come to his friend for some advice on what to do about his financial situation. The friend replied that he had to sell his R2-million investment car. Not only could he not afford to keep up the insurance payments, but it would generate cash he could use to settle other debts.

The businessman refused, stating that in order to be successful, he had to look successful. He believed his car made other people see him as important, because without that car he would be nobody.

This story came to mind when I was reading Mavis Ureke’s book, Managing Emotions for Financial Freedom, where Ureke talks about the extent to which we equate money with emotional wellbeing.

As Ureke points out, while one has to feel worthy of financial success to achieve success, you do not have to achieve success to feel worthy. Yet this businessman’s entire self-worth was dependent on how he was viewed by his community, because like so many people, his self-worth was dependent on his financial success and when the finances went wrong, his entire world fell apart.

Ureke goes on to talk about how so many of us equate success to lifestyle or status, and how success is tied to the lifestyle we live, the car we drive and the clothes we wear.

“A person may decide to look like it, pretend they have it, act as if they have it and the underlying belief might also be that if you look successful then you will be successful,” writes Ureke.

The point Ureke makes so well in her book is that we need to understand the value system we attach to money and also learn that having money – or not – does not determine who we are as people.

Ureke sees money as an energy which is in constant flow, so sometimes we earn it, save it, spend it or lose it. One thing we know from watching people becoming millionaires overnight, is that money does not bring happiness.

This does not mean that Ureke doesn’t believe in financial success. Quite the opposite. The book was born out of her own personal journey of taking control of her money and moving out of financial chaos. She realised that her money mistakes would never end unless she understood why she made them and why she continuously sabotaged her financial stability.

Ureke defines financial freedom not only as a physical state, where one has enough money not to work or knowing that you won’t be a burden on your children, but in having the “ability to manage the money you have in such a way that it does not leave you with anxiety, regret, anger, shame and fear.”

Ultimately, she says, financial freedom is when you are “not a servant of money but money is instead your servant, meaning it obeys you, and when you say come, it moves towards you.”

As you can gather, this is not your traditional finance book. It doesn’t teach you how to budget or invest, but rather deals with the reason you may not be reaching your financial goals and how you are subconsciously sabotaging your own success.

This requires some deep reflection of our own money values – values that have been ingrained in us from a young age through the way our families managed money, or personal experiences where we perhaps suffered a financial loss. So it starts with understanding who you are and what it is you value.

Ureke also uses the “Seven Levels of Awareness“, used by leadership coaches, to assess your personal level of money awareness. Based on a questionnaire, you can assess whether you manage your money as a survivor, conformer, aspirant, individuator, disciplined, experiencer or a master.

For example, a “survivor” is someone who ignores money problems, has fallouts with family and friends about money and tends to be a compulsive buyer. Ureke describes this level of awareness as someone who sees themselves as a victim, someone who blames other people for their financial predicament and shifts responsibly to external circumstances.

An “aspirant” would be someone like the businessman with his high-performance car – someone who believes you have to look successful to be successful, where status and lifestyle are important. These people tend to live beyond their means. Ureke describes this level of awareness as one in which the person has an aspiration but lacks the necessarily inspiration to achieve what they desire.

An “experiencer” is someone who is at peace with what they have achieved so far, is open and honest when talking about their money, has several investments, and has educated themselves on personal finances matters. The challenge for this individual is to move into the “master” phase where they become leaders and mentors, sharing their experiences and leaving a legacy.

Through each questionnaire, Ureke provides ways to help you break the cycle and to alter your behaviour and belief around money so that you can move to a higher level of awareness.

* Maya Fisher-French is an award-winning financial journalist with a flair for cutting complex money matters to their core. Find out more on  mayaonmoney.co.za. Maya on Money, Your Money Questions Answered, is published by NB Publishers.

** The opinions expressed in this piece are the writer’s own and don’t necessarily reflect the views of BrightRock.

This article first appeared in The Comet, an online platform by BrightRock, provider of the first-ever life insurance that changes as your life changes.

 

Footslogging Your Way to Fortune

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Going for an early morning run is hard work. Who among us wouldn’t rather hit the snooze button and drift back into dreamland? But in the long run, the self-discipline and commitment will pay off, and the same applies to your financial goals. By Maya Fisher-French

I recently required surgery to my ankle after sustaining a serious injury. Thanks to this ongoing ankle saga, if I ever want to be able to hike and run again, I am going to have to commit to some serious rehabilitation work. This involves spending 20 minutes each day strengthening and increasing the flexibility of my ankle.

This is chronically time consuming, not to mention phenomenally boring. Who honestly has 20 minutes to spare every day, or quite frankly wants to spend those spare minutes with a resistance band wrapped around your foot attached to the leg of a table? Let me tell you, it is hard work and it hurts!

In order to fit this exercise into my daily schedule as a working mom, I have to get up half an hour earlier than my kids, so my exercises are done before the morning chaos starts of getting kids dressed, fed and packed off to school.

And I love my sleep. I am the sort of person who could hit the snooze button endlessly. Yet I have this goal and it’s a really, really important one. My regular 5km runs and going on hikes are my passions in life; they are what keep me sane, with the added benefit of keeping the fat rolls under control.

This means I have no choice but to apply myself, because the bottom line is that no amount of physiotherapy visits or anti-inflammatory medication is going to help me reach my goal. Only my own hard work and dedication will get me there.

Getting out of debt or reaching some other financial goal is pretty much the same.

You can buy as many self-help books as you want, read dozens of articles on money management and attend endless seminars, but until you put the time aside to draw up a regular budget, and unless you find the discipline to stick to your goals and make a real commitment, you are never going to reach that goal.

It will not be an easy journey, and there will be lapses. There are days I skip my morning routine and even worse, days where despite all the work I am putting in, my recovery seems to be going backwards rather than forwards.

It is often a matter of two steps forward, one step back. But I persevere and find the motivation more often than not from the beauty that surrounds me. It reminds me that my need to walk in the mountains of Cape Town is far greater than that extra bit of sleep or self-inflicted pain.

If you are on a financial journey, find that motivation. Set a goal and imagine what it will feel like to reach it. Know too that it will not be an easy journey, but in the end it will be far more rewarding than continuing to spend money on stuff you really don’t need.

* Maya Fisher-French is an award-winning financial journalist with a flair for cutting complex money matters to their core. Find out more on mayaonmoney.co.za. Maya on Money, Your Money Questions Answered, is published by NB Publishers.
This article first appeared in The Comet, an online platform by BrightRock, provider of the first-ever life insurance that changes as your life changes.

 

 

Psssst … want to earn some extra cash?

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Cutting expenses isn’t the only solution when it comes to balancing your budget. If you’d love to earn a little change to boost your regular income, put these opportunities to the test. By Maya Fisher-French

With everything from interest rates to tax to electricity and petrol increasing faster than our salaries, it’s not surprising that it’s becoming more difficult to make ends meet. If you’ve stretched your budget to its limit, it’s time to start thinking out of the box to find ways to make extra cash.

Join the Pay-per-Task Revolution

Pay-per-task websites have transformed the work environment by creating platforms where companies or individuals list jobs that can be done remotely.

This phenomenon has been coined “crowdsourcing” and is usually used by small-and-medium-sized companies to hire skills around the world. For example, a South African company may enlist the skills of a writer in India to do their press releases, or a company in the UK may hire a South African to design a new website. These are all contract based without the need to ever sit in an office.

Some freelancers make their livings off these sites, but many full-time employed people moonlight in the evenings or weekends to supplement their income.

Develop Your Freelance Skills

If you have skills such as programming, graphic design, proofreading, writing, typing or even book-keeping, there are loads of opportunities for freelance work on websites like upwork.com or peopleperhour.com.

The downside is that many thousands of people are using these sites, so competition is fierce. You may have to accept lower-paid jobs initially, until you have built up your online portfolio and positive reviews.

Ros Brodie, a freelance copy-editor and proofreader who uses upwork.com, recommends that if you don’t have specific and in-demand skills, you may want to price yourself very low when you first start.

“Since you have no work history or ratings, price is the only factor you can compete on. Try apply for jobs that have some sort of ‘test’ attached to the application ‒ this will allow you to prove your abilities and show the quality of your work.”

The more good work you do, the better your reviews, and the likelier it is that you’ll get more work. Of course the opposite can also apply ‒ a negative review would hurt your chance of future work.

Payment is done via PayPal, and you can withdraw the funds to your local bank account. Be careful of scammers. No site will ask you to pay a registration fee, though some do offer a premium service for a small monthly fee. They  make their fee by taking a percentage of each job.

Become a Mechanical Turk

Sites like clickworker.com and Mechanical Turk have tasks that involve data capturing, texting, researching, categorising and tagging of data.

Mechanical Turk, run by Amazon for their own website, hires people for internet-based tasks. They run what they call Human Intelligence Tasks, where you are given a time period to complete the task and the amount of money paid is clearly indicated. After the requester approves the work, the money is deposited into your Amazon payments account.

The tasks include filling out a multiple-choice survey, checking if two products look the same, finding the Twitter account of a website URL, and categorising images.

The amount paid is very small, often less than a Rand, so you need to do several in an hour to earn any real money.

Trent Hamm, author of The Simple Dollar, tested Mechanical Turk to work out how much he could make in an hour. He made around R80, which is not a bad income to make on the side.

His recommendation is that since the tasks require a very low skill level and are often repetitive, the work is best done in sporadic bursts during the course of the day.

He recommends avoiding very low-paying tasks but refreshing frequently to see what new tasks are available, as well paid tasks go quickly. Writing tasks are better paid, so if you can write quickly, especially on a topic you’re familiar with, you could earn a better rate. By completing an online test, you can earn a qualification that makes some higher-paid jobs available.

Become a Helper for Hire

The US has several sites where people and companies can post small jobs, tasks and errands such as collecting laundry, summarising a lecture, and finding a string quartet for a party. These sites are designed for students who have a few spare hours a week to help people who are too busy to get the day-to-day stuff done.

In South Africa these sites are not as prolific. But if you have a car and can run errands, list your services on websites like Gumtree and OLX, or work on word of mouth. A word of warning: there are some strange people out there, so vet them carefully before you take on the job.

Drive someone home safely

As South Africans become more aware around drinking and driving, many driver-assist businesses have opened. There is a high demand for part-time drivers to work a 12-hour shift over a weekend.

Unlike a regular taxi service, in the driver-assist model the driver is dropped off at the location by a ‘chaser’ and drives the client home in the client’s car. The ‘chaser’ follows and collects the driver once they have dropped the client at home. This means there is no need to have special insurance or a public driver’s license.

Drivers and chasers do need to submit to drug screening on request and are subject to background checks. As the driver, you would usually go on a training course before being allowed to drive clients.

Some companies pay a set fee for the 12-hour shift, while others pay for each trip taken, with a minimum booking fee. Over and above the booking fee, a driver can make good tips. Alan Wheeler of Cape Town based service Drunk Drivers says tips can be around R300 a shift.

Make Your Home famous

There is a huge demand by film and photography crews for locations for photoshoots, especially in Cape Town. You don’t necessarily have to have a designer home, as many producers are looking for ordinary homes to shoot commercials for products such as washing powder and tea bags.

Jeanne Watson of Shootmyhouse says the weak Rand is making South Africa a top destination for international adverts. The catch is that the house needs to be easily adaptable for an international look.

“We are looking for homes that are fairly generic but that are open plan with a lot of space, where small changes can be made to suit the requirements,” says Watson, who adds that kitchens tend to be most in demand for shoots.

The photographic crew may need to make some changes to your home, such as putting in additional counters or putting up blinds, but these are all rectified after the shoot. Watson says insurance is taken out by the film company to cover damages but in her experience this is seldom required as crews are very careful. A generic home for an average commercial can earn between R8 000 and R10 000 per day.

Before signing up, you need to submit photographs of your home. If it meets the criteria, professional photographs will be taken and your home would then be listed on the site.

This article first appeared in The Comet, an online newsletter by BrightRock, provider of the first-ever life insurance that changes as your life changes. The opinions expressed in this piece are the writer’s own and don’t necessarily reflect the views of BrightRock.

 

 

‘Policyholders wasting money on cover they will cancel’

Policyholders who take out lump-sum disability cover cancel much of their cover before they reach retirement, which means that they will have paid more for their cover from the date on which their policy started than was necessary, life assurance company BrightRock says.

By Mark Bechard.

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BrightRock has designed its cover to be flexible, to match your changing needs more closely and avoid what it calls “wasted premiums”.

Schalk Malan, BrightRock’s product actuary and director, says life companies’ claims statistics show that, as policyholders’ need for lump-sum disability cover decreases as they approach retirement, they are cancelling large amounts of cover.

Despite the need for cover decreasing, the risk of disability when you are 60 is nearly nine times higher than it is when you are 40, Malan says.

But claims statistics for 2013 show that claims paid from lump-sum disability cover did not increase between the ages of 40 and 60; instead, claims by policyholders over the age of 50 were 85 to 95 percent lower than expected. Malan says the explanation for this is that policyholders had significantly reduced their cover in line with their reduced needs.

The reduction in lump-sum disability cover later in life has been confirmed by studies by True South Actuaries and Consultants, he says.

Most policyholders use lump-sum disability policies to cover needs that exist for a specific term and decrease over this period – what is known as “decreasing term” needs, Malan says. Cover that decreases over the term of the policy is cheaper than cover that is priced to increase for the full term, which could be until you retire or your entire life, because the financial risk to the life assurer decreases over time.

Ideally, cover for a home loan, or to finance your children’s education, or to replace an income, should be decreasing term, because the loan reduces as you pay it off, the total cost of education will decrease as your children grow up, and the number of pay cheques you would need to replace your income if you were disabled and unable to work decreases as you approach retirement.

If, for example, you take out lump-sum disability cover of R1 million at the age of 30, it is likely to include an annual increase to take account of inflation. As a result, the cover will increase, rather than decrease, as you age, despite the fact that your need for the lump sum will probably decrease over time. As you get older and approach retirement, your broker or financial adviser is likely to advise you to cancel some of the cover. As the cancelled premiums were priced for the full term for which could have had the cover, the portion of what you have paid is wasted.

If, later in life, you reduce your lump-sum disability cover and re-allocate the premiums to, for example, critical illness cover, you may find that you are less insurable and will pay more for the cover than if you had taken it out when you were younger.

On the other hand, if you had bought cover that was structured more efficiently from the start, you could have paid lower premiums, Malan says.

* This article and image were originally published in Personal Finance on 19 September 2015.

Will lump-sum or income disability cover benefit you?

The removal of the tax deduction for premiums paid on income protection policies and the increasing flexibility in how you opt to receive disability benefits have re-ignited the debate over whether you should take your benefit as a lump sum or an income, writes Laura du Preez

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Lump-sum disability cover may pay out when you are unable to perform certain activities (functional impairment), but the impact of the impairment on your ability to do your job will dictate whether you qualify for a payout on a policy that defines your disability in terms of your occupation.
Income protection is a form of disability cover that pays an ongoing income only, not a lump sum.

In March this year, the tax deduction for income protection premiums was removed, while the income you receive from such a policy if you are disabled and your claim is successful was made tax-free. Until March, the premiums were tax-deductible, but the income after a successful claim was taxed at your marginal tax rate.

The change in legislation has made income protection slightly more expensive, because the premium tax-deduction was at your highest marginal rate, whereas the benefit was taxed by applying the different marginal tax-rate bands to the payout, Nic Smit, the product actuary at life assurer FMI, says.

As a result of the tax change, you may be over-insured if you took out income protection to cover your full pre-tax income, because tax will no longer be deducted from income paid on the claim.

If you are disabled and claim successfully on an income protection policy, most life assurers will not pay you an income that is more than what you earned before you were disabled.

In light of the tax change, life assurance companies and financial advisers have been contacting income protection policyholders and recommending that they check their cover. Some policyholders who are over-insured are being offered the opportunity to convert some of their income benefit to a lump-sum benefit.

Nicholas van der Nest, the director of risk product innovation at Liberty, says about 25 to 30 percent of Liberty’s policyholders were over-insured and were given the opportunity until the end of August to convert the amount by which they were over-insured to lump-sum cover, with R100 000 of lump- sum cover offered for each R1 000 of converted monthly income.

The premiums for the lump-sum cover are based on age.

Van der Nest says there has been a decline in the sales of income protection policies. Although this is in part a result of policyholders requiring lower levels of cover, because the income will no longer be taxed, it is likely that the tax change has made some advisers uncertain about the product.

Financial advisers are likely to be less inclined to sell income protection, because they are having to review all their clients’ cover and may in some cases face having commission paid on policies sold being clawed back, he says.

But at a recent conference organised by Glacier at Sanlam, Dr Eric Starke, the senior medical adviser for Sanlam, said Sanlam’s statistics show that claims paid for lump-sum disability declined from 2011 to 2014. In comparison, claims paid on income protection policies and, in particular, sickness benefits, which cover shorter periods when you are too sick to work, increased hugely over the same period, he says.

Sanlam has been focusing on making people aware of the need for income protection, and this has resulted in its sales of income protection exceeding those for lump-sum cover in the past four to five months, he says.

Starke says you must have cover for temporary disability, and you cannot use lump-sum cover for this.

He is of the view that income protection is the best cover for your income needs, but if you do use lump-sum cover, you must also take out income protection for temporary disability.

Smit also believes that cover that provides ongoing income payments best suits your need to replace lost income if you are disabled. If you have lump-sum cover only, you are at risk of living longer than the lump sum can generate an income. He says there is also the risk that the invested lump sum will not earn good returns and ensure that your income keeps up with inflation.

GREATER FLEXIBILITY IN HOW YOU TAKE YOUR BENEFITS

Life companies are offering greater flexibility in how you are paid disability benefits, which, together with the potential need to adjust the level of cover because of changes to the tax laws, may result in you having to rethink your income and lump-sum needs.

Some life companies now offer you the option of converting a lump-sum benefit to an income when you claim on a disability policy, and recently one life assurer started offering its policyholders the option of converting an income protection benefit to a lump sum.

BrightRock offers policyholders who are permanently disabled the choice at claims stage of taking their benefit as a lump sum or an ongoing income.

The company has highlighted the unfairness of paying for lump-sum cover that increases annually, which assurers price to be in place for your entire working life, whereas you are likely to cancel much of the cover well before you reach retirement.

Recently, Momentum introduced a feature on its Myriad income protection policies that enables you annually to choose to commute all or part (25, 50 or 75 percent) of your income benefit for the following year to a lump sum. This can be done from the second anniversary of your policy once your disability has been confirmed as permanent.

BrightRock’s product actuary and director, Schalk Malan, says a policy that pays your benefit as an income is the best way to protect your income. However, he says financial advisers are also aware that income protection may offer poor value if you do not live for long after becoming disabled.

Consumers have traditionally preferred lump-sum disability cover to income protection, and re-insurers’ statistics have highlighted that only about 18 percent of all disability cover is income protection, he says.

The short life expectancies of people with disabilities can potentially mean that your income protection benefit is less valuable than if you received your entire benefit as a lump sum, he says.

Many of the causes of disability are severe illnesses, such as heart conditions and cancers, that leave policyholders with significantly shorter life expectancies. Lifestyle changes are making these illnesses more prevalent, Malan says.

If you have the choice of receiving your benefit as either a lump sum or an income, you can ensure that your financial needs, whatever they may be when you are disabled, are met, he says.

If your life expectancy following an event that leaves you disabled is short, you can choose the lump-sum benefit, but if you are likely to live a long life, you can choose to receive a regular income.

The removal of the tax deduction for income protection premiums may increase the flexibility to choose the type of benefit you want when you are disabled, because lump-sum and income benefits are now treated the same from a tax point of view, making it easier to substitute one for the other.

Momentum says the feature on its Myriad policies that allows you to commute a year’s income to a lump sum acknowledges that you may need the flexibility of having a lump sum, instead of an income, to cover expenses that result from permanent disability.

Neil Muller, the head of retail life insurance product development at Momentum, says giving policyholders a choice of how they want to receive the proceeds of their policies strikes a balance between the need for an ongoing income and lump-sum payments for once-off expenses.

Muller says the Myriad range now includes a longevity protector for employees who have group health insurance. This benefit gives you protection if you live a long time, because it pays out a lump-sum benefit every five years from the inception of the policy, which you can use to meet lifestyle-related or medical expenses.

If you do not claim on the policy, the longevity benefit is converted to a lump-sum benefit and paid to you when you turn 80, he says.

Not everyone agrees that having the flexibility to choose benefits at claims stage is good.

Nicholas van der Nest, the director of risk product innovation at Liberty, says if you are given a choice between a monthly income and a lump sum when you are disabled, you may not make the most appropriate choice. You might be feeling vulnerable and are likely to choose the lump sum, because this might seem to have greater value than the income, he says.

You should have both lump-sum cover and income protection, and you should correctly establish your need for both when you take out the cover, Van der Nest says.

Nic Smit, the product actuary at FMI, agrees that not everyone will have the discipline to make the right decision and may sacrifice their long-term security for an immediate benefit.

He says lump sums should be used for once-off expenses, such as settling debt and lifestyle changes necessitated by your disability, whereas income benefits should provide you with an income until you retire.

FMI recently extended its income protection benefits to people who often do not qualify for this cover – the likes of game rangers, actors, writers, musicians and oil-rig workers.

Smit says the advantage of income protection over cover for functional impairment is that you do not have to prove you are permanently disabled before an income protection policy will pay out.

This article and its image were originally published in Personal Finance on 19 September 2015.

What Would You Do If You Won the Lotto?

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We all know that our chances of winning the Lotto are as remote as, well, our chances of winning the Lotto. But there’s no harm in dreaming, especially if you can turn your dreams into goals. Here’s how. By Maya Fisher-French

Our family has a game where we write down what we would do with our money if we won the lotto. This is not just a fruitless exercise of “what if”, because it does show us what is important to us – what our dreams really are.

Apart from the obvious ones like paying off your bond, there are always value-based ideas that are different for each person.

 

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Giving to charity

The portion of my Lotto winnings I would give to charity would help more children receive an education. Education is important to me, so rather than waiting to “win the lotto”, I started a monthly debit order to the Peninsula Feeding Scheme, which feeds children across the Cape Peninsula.

With food in their stomachs, children are better able to learn, and knowing they have a meal waiting for them at school makes them more likely to come to school. I didn’t need to win the lotto to start making a difference.

 

Flying Business Class

On the pure luxury side, I want to be able to fly Business Class when I travel abroad. If you’ve ever compared the cost of a Business Class ticket to Economy, you’ll realise you need serious cash to reach this goal.

I thought about it for a while and realised I could do this through air miles. As I fly a fair amount locally for work, by committing myself to one airline for all my local travel, I could clock up enough points to upgrade to a Business Class ticket at least every second year.

Then I realised I could boost these points by opting for a credit card tied to the airline’s rewards programme. This means I could upgrade my husband rather than having him sitting behind the curtain in Economy class – that may have been a marriage breaker.

So I signed up for a credit card that will boost my points. It was very easy to do and the questions around my living expenses were laughable, but that is for another column.

I will pay the amount I spend each month on average into the credit card at the beginning of the month. This means I’m not going to end up with a massive credit-card bill.

My goal here is to work the system, not have the system work me. By focusing all my spending through the single card, I can work on my goal to travel Business Class without winning the lotto – the odds are far more favourable!

What are Your Lotto Dream Goals?

So how about playing the “if I won the Lotto game” for yourself? You just might find innovative ways to fund your dreams. Here are a few ideas.

I want a better education for my children

Join your school’s governing board and help improve the school. Find out about bursary schemes at schools you feel are right for your child. Consider extra lessons if you want to supplement your child’s education.

I want to take my family on an overseas holiday

Have you ever noticed how many competitions there are for family holidays? Spend a year entering all the competitions you can find. Make sure they are legit, and set up a separate email address so you don’t get spammed.

 

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I want a new car

Ditto on the new car. Start entering competitions.

I want to leave my children an inheritance

Start a tax-free savings account in their name. If you put just R500 away each month into a fund growing at 10% a year it would be worth R380 000 in 20 years’ time – all tax-free.

I want to change the world

There are so many charities and non-profit organisations that need time more than money. Offer your time and skills.

 

 

I want to take a year off and travel the world

There are many options. If you save 20% of your salary and invest in a fund that returns around 10% a year, you will have a year’s salary put away within four years.

There are volunteer programmes across the world where you get free food and lodging for helping to build a school, for example. You get to travel and do good.

Do a six-month house swap or build up a reputation as a trustworthy housesitter and sign up with a global housesitting service. Start investigating. You’ll be amazed at the options.

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I want to be debt free

No matter how much money you won in the lotto, if you’re drowning in debt now, chances are you’d be back in the same position within just a few years.

If you’re not managing your money now, you never will. Start by cutting up those store cards and credit cards and committing a few hundred rand extra each month to repaying those debts. You will be amazed at how quickly your finances improve.

* This article first appeared in The Comet, an online newsletter by BrightRock, provider of the first-ever life insurance that changes as your life changes. The opinions expressed in this article are the writer’s own and don’t necessarily reflect the views of BrightRock.

 

 

 

Save Your Life!

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Here’s how to make the most of your money and your life now and in the future.

You want to get there happily and safely, and you want to enjoy the journey. But there are obstacles along the way: potholes that can trip you up and scuttle your best-laid plans.

Life is a highway that leads you to the ultimate destination. Your future. You want to get there happily and safely, and you want to enjoy the journey. But there are obstacles along the way: potholes that can trip you up and scuttle your best-laid plans.

That’s why it’s important to get in gear for a better tomorrow, by making sure that you’re financially roadworthy. Are you in control of your spending? Do you feel financially secure? 

For almost two-thirds of South Africans, according to the Consumer Financial Vulnerability Index, compiled by MBD and Unisa, the answer, in both cases, is no.

And yet it is possible to take charge of your money and your life, says BrightRock’s Executive Director: Distribution, Sean Hanlon. As the big holiday season rush gets underway, Sean offers some pointers for avoiding the potholes and staying on track. The key to making your money last, he says, is to “start with what you’ve got”.

That means

If you pack your own lunch, instead of buying takeaways, for example, you could save up to R500 a month. There are many easy to use mobile apps, including the free 22seven (22seven.com), developed in South Africa, that can help you track when and how you’re spending your money, says Sean.

Knowing where your money is going, down to the last cent, will empower you to make the right financial decisions. Identify your priorities, and work hard at digging your way out of debt. Also see Maya Fisher-French’s article on great budgeting tips.

Pay off your highest interest debts, such as store cards and credit cards, as soon as you can. Once you’ve paid off your debts, you can start saving. And don’t forget to set aside some money, ideally equivalent to three months’ salary, as an emergency fund.

Planning is the key to financial security, says Sean. You can save an average of 10% by paying school fees in advance. If you book your holiday early, you can save up to 40%.

If you’re buying a home or car, save as much as you can for a bigger deposit. The smaller your loan or shorter your loan term, the less interest you pay. Taking charge of your finances also means being a savvy shopper. “Make conscious spending decisions,” says Sean. Shop around for the best deal, in-store and online, and negotiate, negotiate, negotiate.

Even when it comes to your medical expenses, you have the right to negotiate with healthcare providers. You can save by asking for a discount – don’t be shy! At the same time, don’t compromise on quality. For some expenses, like brakes and tyres, your mattress and your toothbrush, it’s cheaper in the long run to buy the best.

If you’re fortunate enough to get a bonus, put it to good use. Put money in your bond, pay off debt, boost your emergency fund or add to your retirement savings.

You’re in charge of your money, and you’ve got the power to make it last. But don’t try to do it all by yourself. A trusted, qualified financial adviser can make a wealth of difference. You can check our your adviser’s professional and industry credentials at www.fpi.co.za or www.fsb.co.za.

So here’s all you need to do to get ready for the road ahead:

  1. Start with what you’ve got
  2. Plan for what’s to come
  3. Stick with the plan

Please note: These tips don’t constitute financial advice. It’s important that you get financial advice from an independent financial adviser who is qualified to assist you.

 

This article first appeared in The Comet, an online newsletter by BrightRock, provider of the first-ever life insurance that changes as your life changes.

 

The cappuccino crunch

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Do you really, really need that daily cappuccino? Of course you do. But putting it on hold and taking a fresh look at your little indulgences could save you a small fortune every year, advises Maya Fisher-French, in this extract from her new book, Maya on Money.

A couple of years ago I wrote an article about how much you could save in a year if you invested what you spent on a daily cappuccino. The amount is quite extraordinary – over R6 500.

I was pointing out that when people say they “don’t have money to save” they are not looking at those daily unnecessary expenses that add up to a great deal over time.

Finding that extra money

The only way to get your grocery and entertainment budget under control is to write down everything you spend for a month or two. You will quickly find where you are overspending. In fact, just writing it down will make you think twice about what you are spending.

After conducting the experiment myself, I discovered one of those unconscious spending habits: during the summer months, in the intense Cape heat, I had started a habit of taking my sons for a smoothie a few times a week after school. This new habit was costing me R500 per month. This is R500 that was not budgeted for.

I should mention that even after being really careful with our groceries recently – looking out for specials and finding creative ways to cook for less – the reality was that our grocery bill had risen by 80 percent over the last four years.

We can find more ways to cut back, but ultimately some of the money we spend on luxuries will have to move into the grocery money pot – it’s simply getting a lot more expensive to buy the basics that you need for day-to-day living.

Review those monthly bills

Our fixed monthly expenses always surprise me – I cannot wrap my head around the amount of money that goes out of our account at the beginning of each month before we have even bought a loaf of bread. Those monthly expenses need to be reviewed regularly as there are usually savings to be found.

Check your bank fees – saving: R1 680

A friend of mine complained that she was spending around R220 a month on bank fees. Just by speaking to her bank and changing to a more appropriate account she saved R1 680 in bank fees in one year. It is worth noting that several banks offer reduced bank fees if you keep a specific minimum balance in your account.

Call your insurer – saving: R2 400

Car and household insurance have become a lot more competitive and you may still be paying old rates. You don’t usually have to move insurers as your insurer would be loath to lose you if you are a good customer. Experience shows they are often willing to match a quote you received from one of their competitors. By renegotiating with our insurer on both our car and household insurance, we saved around R2 400 in one year.

Bank your change – R2 000

My husband linked his transactional account to the FNB “Bank Your Change” savings account. Every time he uses his FNB card, the purchase is rounded up to the closest R5. For example if he spends R63 then R65 is deducted from his account and the R2 is added to his Bank Your Change account.

By the end of the year he has around R2 000 which we use to pay for all those extras over the festive season.

If you don’t bank with FNB, keep a jar in your kitchen where you put all your loose change at the end of the day. At the end of the year take it to your local school’s tuck shop or even your corner café. They will be only too happy to take your coins in exchange for notes.

Benefit from being loyal – saving: R2 000

It is never a good idea to pay extra to join a loyalty programme but if the loyalty programme comes at no cost, it can be worth a fair amount. Friends of mine used their Pick n Pay Smart Shopper rewards to pay for their entire family Christmas dinner and all Christmas gifts were bought using rewards from their bank.

Be aware however that the benefits of the loyalty reward programme can be built into the price of the goods so don’t let the lure of rewards make you over-pay for goods – you should still shop around.

Another hidden cost of loyalty reward programmes is access to your personal information and direct marketing – set up a separate email address for your reward programmes so that your personal inbox is not filled with marketing bumph.

Smooth your electricity costs 

This is not so much saving as averaging out your electricity costs over the year so that you are not hit with those winter bills. If you have a pre-paid meter, buy the same amount of electricity throughout the year.

In summer, ‘accumulate’ electricity and in winter dip into ‘the reserves’. Even if you have an electricity account, you can pay in extra during the summer months to pre-fund your winter bill.

A relatively quick way to cut your electricity costs is to install a timer on your geyser. After spending around R1 500 to have a timer installed our electricity bill fell by around 30% – the timer was paid off in a couple of months.

Set up a debit order

When my son was about two years old,  I started a R200 a-month debit order into a fund that tracked the average return of the stock market.

We recently increased the amount to R300 per month but today, 12 years later and after one of the biggest market crashes in history, the investment is worth over R90 000. Not bad for the cost of a dinner once a month!

Put your Money on Maya

Here’s another handy money tip: invest in a copy of Maya on Money: Implement Your Money Plan, published by NB Publishers. 

It’s a highly accessible and informative guide to making your money work harder and smarter for you. Maya is an award-winning financial journalist with a flair for cutting complex money matters to their core. Find out more on her website, mayaonmoney.co.za.

Maya Fischer-French is an award-winning independent financial journalist. Her accessible and practical advice on personal finance and investment issues has appeared in several leading South African publications, including the Mail & Guardian, Maverick and BestLife. She currently edits the “My Money, My Lifestyle” section for City Press. Maya holds a BA Honours degree in Economics, and she worked in stockbroking and private banking before embarking on her journalistic career.

 

* *This article first appeared in The Comet, an online newsletter by BrightRock, provider of the first-ever life insurance that changes as your life changes. The opinions expressed in this article are the writer’s own and don’t necessarily reflect the views of BrightRock.

 

Life policy benefits: income vs a lump sum

6 April 2014. Personal Finance (Independent Newspapers).

There is a minor but growing trend, particularly among newer life assurance companies, to provide life policies that pay out a death benefit as an ongoing income, rather than a once-off lump sum.

The move is being hailed by some, but one of the new assurers, AltRisk, says uncertainty about how an income benefit will be taxed has limited financial advisers’ interest in this option (see “The tax question”, below).

Recently, FMI, a life assurer in the Lombard Group, launched a life policy that, it claims, offers more flexibility to structure the benefit to meet the income needs of your dependants and provide a lump sum for once-off expenses, such as paying off a mortgage bond.

FMI has until now focused on providing income protection policies that replace your income if you become disabled and are unable to earn an income.

Nic Smit, a product actuary at FMI, says that, in the same way that the best cover for disability is the combination of an ongoing income from an income protection policy and lump sum cover, life cover should be a combination of an ongoing income for your dependants and a lump sum.

Altrisk’s income benefit on its life policies allows you to choose a basic income benefit, which is paid to your beneficiaries for 24 months after your death, or an extended income benefit, which is paid until you, the life assured, would have reached the age of 60, 65 or 70.

BrightRock, another insurer in the Lombard Group, offers the beneficiaries of its life policies the option at claim stage to convert a lump-sum death benefit to an income benefit.

BrightRock’s actuary and director, Schalk Malan, says although BrightRock believes there is value in offering an income as a benefit, it is of the view that your beneficiaries should have a choice when the benefit becomes payable, because the lump sum may be more attractive at that stage. This would be the case if interest rates were rising, because the investment could buy a higher income when rates have risen, or if the beneficiary has a short life expectancy, he says.

If on your death your beneficiaries choose an income rather than a lump sum, BrightRock will use the lump sum to buy a voluntary annuity.

FMI’s policies give you the option to choose different income levels and payment periods to suit the needs of your beneficiaries. So, for example, you could set the lump-sum cover so that it pays off your home loan and then have three income benefits that pay your spouse, your children and a dependent parent.

The income can be linked to inflation and paid for a term – for example, until your spouse reaches the age of retirement – or for the rest of the beneficiary’s life – for example, until your parent dies.

FMI says that, when you take out lump-sum cover to provide for an income need, the amount of cover you buy is based on assumptions about inflation and investment returns that may turn out to be incorrect, resulting in your being under- or over-insured.

In addition, it says, your dependants have to invest and manage a lump sum so that it will provide them with an income. This exposes your dependants to the risk that their needs will not be met if the investment does not perform well, they live longer than expected or inflation is higher than expected and the investment returns do not beat inflation.

FMI says another big advantage of an income benefit is that the benefit becomes cheaper to provide as time passes and less income is required, whereas the lump sum remains the same, and the cost of providing the full lump sum on the day you die is higher than the cost of paying an income from that day onwards. As a result, FMI says, the premiums on its policies may be cheaper and the premium increases may be lower than on a policy that will pay out a lump-sum benefit.

FMI has found that the cost of providing for your disability needs with a lump sum, rather than a monthly income, is between 32 percent and 41 percent higher because of the risks associated with using a lump sum to provide an income stream.

The launch of FMI’s “income for life” policies is likely to spark debate on the merits of an income benefit as opposed to a lump-sum benefit for life cover.

Independent financial adviser Debbie Netto-Jonker of Netto Invest says she is delighted that life assurers are starting to offer income benefits rather than just lump-sum benefits.

An income benefit is likely to provide better protection for widows and orphans, because many people cannot afford the financial advice needed to invest a lump sum to ensure that it will provide for their dependants’ needs, she says.

Before you take out any life assurance policy, you should find out what the exclusions are and ask the cost of the premium per R10 000 of cover, Netto-Jonker says.

Rick Briers-Danks, an independent financial adviser with Veritas Wealth, agrees that an income benefit combined with a lump-sum benefit to pay off debt removes the risks associated with receiving a large cash payout.

You should check whether the premiums will, in fact, be cheaper, and the premium escalations, Briers-Danks says.

An income-benefit policy may be more suitable if your financial planning is “once-off”, he says, but someone who obtains regular financial advice is less likely to get the lump-sum calculation wrong, and an adviser will help the surviving family to invest a lump sum.

Although an income benefit provides certainty about the income your dependants will receive, it removes the flexibility your dependants have to invest a lump sum as they would like to provide for whatever needs arise in the future.

Ryan Chegwidden, the executive head of product at Altrisk, says if the payment of the income benefit is deemed an asset in your estate, a lump-sum benefit should be used to pay the tax.

Malan says that, with BrightRock’s life policies, you are informed what lump-sum benefit your policy will provide on death, as well as the amount of income the lump sum would buy at the date of the statement. The benefit value is guaranteed.

The value of the income benefit that FMI provides will diminish over time. The life assurer will convert an income benefit into a lump sum if the intended beneficiary dies before you do, but the value of the lump sum will be calculated when that event happens, based on assumptions of what that income would have been worth at the time of the beneficiary’s death.

 

THE TAX QUESTION

FMI believes the income benefit from its life policies will be tax-free from March 1 next year. It says this will be the result of a change to the Income Tax Act that takes effect from that date.

The amendment is intended to harmonise the tax treatment of income replacement policies that pay out an income on disability with the taxation of life and disability policies that pay out a lump sum.

The premiums on a life or disability policy that pays a lump sum are not tax-deductible, but the payout if you claim is tax-free.

You can deduct from your taxable income the premiums on an income replacement policy, but the ongoing annuity (pension) paid out if you become disabled is usually taxed.

The amendment to the Income Tax Act will from next year mean that you will no longer be able to deduct from your taxable income the premiums paid on an income replacement policy, but if you claim on the policy, the income will be tax-free.

Nic Smit, a product actuary at FMI, says that, from March 1, 2015, the Income Tax Act will exempt any amount you or your beneficiaries receive from an insurance policy for death, disability, severe illness or unemployment. He says KPMG has said this exemption will cover the proceeds of such policies, whether paid in the form of an income or a lump sum.

Ryan Chegwidden, the executive head of product at Altrisk, says Altrisk’s income benefit is paid to beneficiaries tax-free. He is of the view that this is because Altrisk’s benefit is paid for a fixed period (until what would have been the retirement age of the life assured).

When an income benefit is paid for an uncertain period, the change to the Income Tax Act that becomes effective next year may bring more clarity, he says.

Schalk Malan, a director and actuary at BrightRock, says BrightRock’s income benefit is taxed as a voluntary annuity: the capital you invested is repaid tax-free and only the interest is taxed.

He says there is still some uncertainty on the implications of the Income Tax Act change that will become effective next year.

 

COVER YOU ENJOY FROM DIFFERENT BENEFIT OPTIONS

FMI uses the following example to show the difference between its life policy income benefit and a lump-sum policy.

Two 40-year-old men, Tim and Freddy, each earn R60 000 a month, have a wife aged 35, children aged five and eight, and a dependent mother aged 70. Each man also has a home loan of R2 million.

Each man wants to provide an income of R20 000 a month for his wife, R8 000 a month for his mother and R5 000 a month for each of his children.

Tim insures his life for a lump sum of R11.6 million, for a premium of R3 038 a month. Tim’s family will have to use the lump sum to pay off the home loan and invest the balance to provide an income. The policy term is the whole of Tim’s life.

Freddy chooses a policy with different terms that will provide a lump sum of R2 million for the whole of his life and an income of R20 000 a month for his wife until he would have retired at age 65, when the couple would have been able to access their retirement savings. Freddy also wants the benefit to pay his mother an income of R8 000 a month for as long as she lives and R5 000 a month to each child until they turn 24. The cover costs him R2 646 a month.

The premiums and benefits of Tim’s and Freddy’s policies will increase by five percent a year. If Freddy dies while the cover is in place, his beneficiaries’ income will increase by inflation, as measured by the consumer price index, to a maximum of 10 percent a year.

Two years after Tim and Freddy take out their policies, there is an economic downturn, resulting in lower returns from South African equities.

The assumptions that were used to calculate the lump sum required to meet the needs of Tim’s family are no longer correct, and he is under-insured. Tim should have life cover of R13.4 million, but he has only R12.6 million.

If Tim tries to increase his cover and his health has deteriorated, he will have to pay a loading on the additional cover.

Freddy’s cover remains appropriate and so his cover is unaffected by any problems with his health.

  • Read the original article here.

 

 

Keep the Change!

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Interest rates have gone up, the price of petrol has soared, and the cost of living is skyrocketing. Maybe it’s time to take a good look at your expenses, and how to keep them in check. Try these tips for starters… by Maya Fisher-French

When it comes to cutting expenses, there are small changes you can make in your spending behaviour that can add up to big savings.

While some expenses may seem minimal, you would be surprised at how much money you could save over just a few months, by putting these frugal tips into practise.

Avoid a shocking electricity bill

Save R480 a year by installing an energy-efficient shower head which uses 40% less hot water. To test your shower head, hold a bucket under the shower head for 12 seconds.

Measure the amount of water in the bucket with a measuring jug. If you have collected more than two litres of water, your showerhead is inefficient.

Cut 5% off your electricity bill by maintaining your geyser temperature at 60°C. First, switch off the electricity circuit at the mains. Then, undo the cover over the electrical element of the geyser and turn down the thermostat using a screw driver.

Save R500 a year by insulating your geyser with a geyser blanket as well as the water pipes leading from the geyser for the first three metres.

Reduce the electricity used by your appliances by 20% by turning off your appliances at the plug. Appliances such as televisions and DVD players, which remain on “standby” when not in use, draw about 20 per cent more electricity than if they were turned off properly.

Cut a further 10% off your total electricity bill by reducing your pool pump’s operating hours to just six hours a day.

Cut your lighting costs by 75% through installing compact fluorescent lamps (CFLs). Lighting accounts for 17 to 20 per cent of your electricity bill so switch off lights in rooms that are unoccupied.

Eat in at work

Take a packed lunch to work instead of buying your lunch from the canteen or takeaway around the corner. If you pay an average of R25 for lunch three times a week, that quickly adds up to a saving of R300 a month.

Be a cost-conscious shopper Shop smart. Check the unit prices on products instead of just looking for the lowest price. A larger pack will have a higher price, but usually works out cheaper per unit.

For example, you might find it’s cheaper to buy a 1kg tub of margarine in one shopping trip rather than two 500g blocks of margarine over two shopping trips.

If you’re contemplating a purchase that is not an absolutely necessary item, give yourself a week to think about whether you really need it before you hand over your hard-earned money.

Check your Bank Charges

Watch your ATM fees. Use your own bank ATMs wherever possible and avoid making several withdrawals over a short space of time.

Rather, work out how much cash you need and then make one withdrawal. Do some research into the various account options that different banks offer to see if you could make a substantial savings by moving banks or changing over to a different charging option.

Watch your TV budget

Cancel or downgrade your satellite television subscription. Do you really need more than 300 TV channels? How many channels do you actually watch and how often do you watch TV?

Consider spending more quality time together as a family or downgrading your satellite package to a more affordable option.

For example, if you downgrade from the DStv Premium package (R625 a month) to DStv Compact (R275 a month), you will save R350 a month or R4 200 a year.

Make the right call

Save on your phone bills. With Telkom’s 19:00 to 07:00 Callmore time, Blackberry’s BBM service and Whatsapp, you have little excuses for high phone bills. Make calls only when you have to.

Drive costs down

Check your car insurance premium annually.

Your insurance should be adjusted each year to account for the fact that your car depreciates in value. Not all insurers make this adjustment automatically. You snooze, you lose!

With the price of petrol at an all-time high, consider forming lift clubs for school and getting to work, but inform your insurance company first.

Save your health

If you are on chronic medication, shop around for the best price. Although we have a single exit price for medicines in South Africa, the dispensing fee differs between pharmacies and this can add up to a hefty annual saving.

Check which pharmacies are approved by your medical aid scheme and also look out for national chain pharmacies that can offer you lower prices.

Teach your children well

Instead of shelling out for new uniforms constantly, check out the school secondhand shop. You will pick up good-quality clothing that is priced reasonably and is only likely to be used for one year or even just one or two terms, depending on your child’s growth rate.

* Maya Fisher-French is an award-winning independent financial journalist. Her accessible and practical advice on personal finance and investment issues has appeared in several leading South African publications, including the Mail & Guardian, Maverick and BestLife. She currently edits the “My Money, My Lifestyle” section for City Press. Maya holds a BA Honours degree in Economics, and she worked in stockbroking and private banking before embarking on her journalistic career.

 

** This article first appeared in The Comet, an online newsletter by BrightRock, provider of the first-ever life insurance that changes as your life changes.

 

 

4 Steps to Financial Fitness

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Give your money-muscles a workout with this easy-tofollow programme from our personal finance expert, Maya Fisher-French

South Africans are not very good when it comes to money management. In March this year, the total outstanding consumer credit balance for South Africans was a staggering R1.45 trillion, according to the National Credit Regulator.

There is no time like the present to pull up your socks, tighten your belt, and rein in that spending urge.

01 Track your spending

Get into the habit of recording every cent you  spend and you will soon form a clear picture of where your money is going.

This exercise can take as little five minutes a day and there are extremely good apps available for laptops, tablets and smartphones which will help categorise your spending and identify trouble spots.

These apps can also help you set up a household budget which is critical if you want to be in control of your finances.

Common spending drains include those quick visits to your local coffee shop, bottled water and bought lunches.

Cutting back in your trouble areas will free up money for savings.

02 Don’t pay off shortterm debt with longterm savings

More than half of South Africa’s pensioners are not making ends meet. There are a number of reasons for this, but one of the biggest factors is the depletion of retirement money during working years.

When you change jobs, you have two options: to reinvest the money you accumulated during your years at the previous job or to disinvest the lump sum and take your cash out.

Unfortunately, the money that is cashed out is seldom, if ever, reinvested. The reality is that it is impossible to ever make up the savings if you start saving again from scratch.

This is because you cannot make up for lost time and the savings lose their compounding momentum (compounding refers to generating earnings from previous earnings).

03 Keep on top of your retirement saving

Keeping regular tabs on whether you are on track to maintain your current lifestyle after you stop working is a very smart move.

Most South Africans won’t save enough for their retirement, but there is no reason you should join this statistic.

See if you are on track to retire comfortably with thissimple calculation:

  • After working for five years, you need to have saved 1 x your annual salary
  • After 10 years, 2 x annual salary
  • After 15 years, 3 x annual salary
  • After 20 years, 4 x annual salary
  • After 25 years, 6 x annual salary
  • After 30 years, 7 x annual salary
  • After 35 years, 10 x annual salary
  • After 40 years, 12 x annual salary

04 Save any bonuses or salary increases

Whenever you receive ‘ad hoc’ money such as a bonus, tax refund or salary increase, keep it separate from your day-to-day expenses and save as much of it as you can.

Settling debt is also a smart move to make with this money, but once this is done, anything left over should be used to boost your savings.

Ask your retirement fund and RA provider for the current value of your retirement savings, work out your annual salary and how many years you’ve been working for and you’ll soon see if you are on track.

If you are not, consult a professional financial advisor to make a plan to increase your savings.

This article first appeared in The Comet, an online newsletter by BrightRock, provider of the first-ever life insurance that changes as your life changes.

 

 

Kids Cost a Fortune!

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A good education is the best investment you can make, which is why it’s all the more important to make sure you’re saving enough to give your children the future they deserve. By Maya Fisher-French

If your child started Grade 1 at a public school this year, you can expect to pay around R450 000 for their 12 years of schooling. A private school could cost around R1.5 million, once uniforms,
learning materials and extramural activities have been added.

A three-year degree at university will cost around R350 000 in fees alone, excluding travelling, accommodation and allowances. If your child is born today, you’ll need to save R1 500 each month for public schooling and a three-year degree, if you increase your premium with education inflation; and R3 200 each month if you keep your premium level.

To pay for private schooling and a three-year degree you’ll need to start saving R3 800 per month – that’s if you increase your premium to keep pace with education inflation, which is around 10% a year. But if you opt to fix your premiums, you’ll need to save R8 100 per month. Faced with these, quite frankly, terrifying figures, what are parents expected to do? Something somewhere has to give, and it usually happens in two areas. Firstly, sacrifice retirement savings, and secondly,they take on increasing debt. By having a strategy in place, you can find a way to provide an education for your child without ruining yourself financially:

Watch the debt:

Many parents complain about the cost of education yet drive around in a R5 000 per month luxury vehicle. Your child’s education is far more valuable than a luxury car and education doesn’t  depreciate! When you buy a house, car or take on any debt, do not do it at the expense of your child’s education.

Grow your savings painlessly:

Use the Save More Tomorrow plan to boost education savings. For example if this year you received a 7% salary increase, sign a debit order immediately to put 2% of your additional income into
a savings account. Every year commit to increasing that debit order by a further 2% of your salary.

Within five years you will be saving 10% of your salary without having to cut back on your spending.

Set realistic goals:

It is very difficult to save enough to pay for your child’s secondary or tertiary education in full. Rather target the growing gap between your salary increases and the increase in school fees, in other
words have savings to supplement your school fees.

You also need to save for the jump in school fees when your child moves into high school as the difference in fees between primary and high school can be as much as 20%.

Use the government bonus:

This is a government initiative enabling you to save for a child’s studies towards an accredited qualification at either a public college or university.

You’re paid an annual bonus on the investment which can be 25 per cent of the money you save annually up to a maximum of R600 per child.

If you save R100 a month, you get another R300 a year. To receive the maximum bonus of R600 you have to save R2 400 in total a year. The bonus can only be used by the learner. You can withdraw your own money but will then lose the bonus.

Study loans:

Most students have to consider study loans for tertiary education. Parents can assist by paying off the interest portion each month so that when the child graduates they only have to pay off the capital and not the accumulated interest.

There are also government assisted financial programmes such as The National Student Financial Aid Scheme.

Have a plan:

A good starting point is to enrol your child in a school that you can afford on your current salary. Then as soon as your child starts Grade 1, immediately increase your savings by the difference
between primary and high school fees.

You will then be setting aside a realistic percentage of your salary for your child’s 12 years of education and the savings will supplement the annual fee increases in high school.

For example if Grade 1 costs R1 000 per month but Grade 8 costs R1 500 per month, you need to save R500 a month from the beginning of Grade 1.

Note this would be simply to cover future increases in school fees and not tertiary education.

Start a fund:

Every parent needs to be saving towards their child’s education, unless they plan on inheriting a large fortune. To boost those savings, ask family to add money to their education fund rather than buying birthday or Christmas presents.

Children need an education more than they need toys.

Invest for growth:

If you are saving for five or ten years before you will need the money, ensure that you invest in a fund that will grow faster than the increases in school fees.

Cash-like savings will not be enough as they return around 5% at most compared to school fee increases of around 10%.

Consider investing in a unit trust that has exposure to property and equity (shares). A balanced unit trust would be a good option and several unit trust companies offer investments from R200 to R300 per month.

This article first appeared in The Comet, an online newsletter by BrightRock, provider of the first-ever life insurance that changes as your life changes.