Different types of life insurance.

I often get asked the question: what is the difference between whole of life and term life insurance? There are very important differences that you need to be aware of and how it affects the premium that you pay.

Before we go into the different types, I want to explain the purpose and importance of life insurance. Life insurance is an insurer taking a monthly premium to insure your life. This means that when you die, they will pay out the sum assured indicated on your policy schedule. Most people see this as a grudge purchase as you may pay premiums that increase every year for a long time, and you are not likely to see if it will ever come to the full value. This brings me to the point that the reason you take out life insurance is not for you. It is for the people you care about. Covid-19 highlighted how quickly things can change, and the risk of you dying can change in an instant. It is for that reason, that life insurance plays a valuable foundation of your financial plan. There is no purpose in having a fantastic financial plan creating the future you want for your family, and if you are no longer there, that plan falls flat.

Term life insurance

If you only need insurance for a short period of time, term life insurance may be suitable for your needs. After a period, the life cover will terminate, and you will no longer pay premiums for this. The problem is that after this period, you may not qualify for underwritten life insurance.

Whole of life insurance

If you need your life insurance for a longer period of time, or to make provision for estate costs or assist your family to replace your income when you are no longer there to provide for them, whole of life cover can work in your favour in this instance.

Life insurance should not be viewed as a grudge purchase, but rather part of your financial planning strategy. In most instances, life insurance is probably one of the best returns on your investments, if you structure your insurance correctly.

Want more information?

For more on this topic, you can listen to the eRadio podcast episode 7 here. You can also view the Private Property Podcast where I explain the top three things you need to know about life insurance. You can view that podcast here.

Busting common myths about having a Will.

Your Will forms an important cornerstone of your Estate Plan, but your Will is not your Estate Plan. Your Will is your final instructions on how your assets should be divided when you pass. There are, however, some common myths around Wills.

The first myth, what happens if you die without a Will?

When you die without a Will, your assets will not go to the state. They will be distributed in terms of your family bloodlines in accordance with the Intestate Succession Act. If you are married and have children, they are the first to inherit. Where you do not have a spouse or children, your parents are then considered, and if they are no longer alive, it follows to your brothers and sisters etc. People who were financially dependent on you also have a right against your estate. It is complicated and may cause fighting amongst your family, but the worst part is that an Executor, who is appointed by the government, will administer and divide your assets.

The second myth – You need to have more than a certain amount of assets to have a Will.

This is simply not true as our legislation allows everyone, even if you just own your clothes, to have a Will. Your Will must however comply with certain minimum standards as set out in the Wills Act.
This includes that your Will must be in writing and every page must be signed by you. Your Will also needs to be dated and witnessed by two competent witnesses. A competent witness is anyone over the age of 14 who is of sound mind and who does not inherit in terms of your Will. Please bear in mind that should your Will be disputed, the witnesses may be called to testify in a court of law.

The third myth – The executor decides what happens to your assets. 

The Executor’s role is to ensure that your assets are distributed according to your wishes. The Executor must report to the Master of the High Court. When you pass away, the executor will be appointed by the Master. A letter of Authority will be issued, and the Executor will take control of your assets for the purpose of distributing them in terms of your Will. Once all your assets have been distributed, the Executor needs to submit a liquidation and distribution account to the Master.

It is important that you keep an originally signed Will in a secure place and more importantly let your family know where it is kept. Make sure your Will is current. You can change your Will as often as you want – you do however need to make sure that is properly signed and dated.

If you need advice on drafting your Will, or you require assistance with your estate plan, use the Contact Us button to speak to us for more information.

What is a record of advice?

Financial Service Providers must provide you with a record of the advice to detail the advice that they have provided to you. A record of advice is mandatory in terms of the FAIS General Code of Conduct and has a set of minimum requirements.

What is the purpose of a Record of Advice?

The purpose of the record of advice is to have a written record of the advice that you have received and to help you have a summary of why certain products were chosen for your portfolio. When you meet with a financial advisor, you will have to provide them with a mandate of the services you require from them. Ensure that the record of advice reflects that same mandate. For example, if you only approached the financial advisor to help you with your retirement plan or life cover that is a limited mandate. Where you have asked them for a full financial needs analysis, the record of advice should reflect that.

There are many components of financial planning, some more complex than others. As a client, you have the responsibility to ensure that that financial advisor has as much knowledge of your affairs as possible, to provide you with the advice that is most suitable to your needs and the goals that you want to achieve.

The Record of Advice

The first aspect of a record of advice is a brief overview of your circumstances at the time that the financial needs analysis was performed. This will generally include things like your income, where you are in your career, what your goals and financial concerns are. If someone reads this part of the record of advice it should almost contain who you are as a person at that point in time.

The second part must contain the products that were considered before a final selection was made. There are several financial products out there and although many of them have similar features, some might be better in your specific scenario than others, or they could have different pricing structures, which might make you prefer one over the other. This is the reason why financial advisors must consider various products and determine if they are suitable for your needs. Where your financial advisor, only works for a specific company and there were no real other products that they can compare, does not mean this is poor advice, it simply means that they will provide to you will be limited to their scope of the product. In some instances, it might be to your advantage as that they should know that product inside out.

The next part should contain the products that were recommended and implemented. Your financial advisor needs to state clearly why the product was the one most suitable to your needs, what needs it would solve for and what needs it is unable to solve for. There should, at the very least be a list of the features and benefits as well as the consequences of entering the selected financial product(s).

Product Replacements

In the financial services sector, there is a term called “churning”. This means that financial advisors replace existing policies with new ones as soon as the period of commission clawback (usually two years) has been reached. The replacement of one product with another is not always in your best interest and therefore the FSCA has made it compulsory for a Replacement Advice Record to be completed and submitted wherever one product is replaced with another. Some replacement of financial products is warranted, especially where there has been product enhancement or where your circumstances have changed and the product you have no longer meets your needs. The replacement advice record has a prescribed format, and it makes provision for financial advisors to compare the products considering aspects such as the premiums, costs, benefits, exclusions, and waiting periods. The financial advisor also clearly must note why the replacement is more suitable for your needs. As the client, you must ensure that you understand it and that you agree with the reasoning for the replacement before signing the document.

In summary, a financial advisor should always act in the best interest of their client. The 3 is the ultimate document to help both the financial advisor and more importantly, you the client, remember why certain decisions were made, why you have signed up for certain products, and what your situation was at the time. It remains vitally important that, no matter how trusting and fond you are of your financial advisor, you read the documents before you sign them. Make sure that you agree to the contents and lastly, ensure that you get your signed copy from the financial advisor.

Why you do not need a Budget.

A budget is based on estimates and most seems like a tedious task. A spending plan can help you divide and priorities your spending.

Values and their importance when setting your goals.

The term “value” is simply a label for what is important to you as a human being. We are all unique and our values are entrenched within us from the day we are born. Your upbringing will help shape your values, but your values are mostly unique to you. Your beliefs are assumptions that you have made about the world. These beliefs will either help you achieve your goals, or it might be a hindrance to help you achieve these goals.  The sad truth is that many do not ever reach their goals.

When you set the goals that you want to achieve, they need to be somewhat aligned to both your values and beliefs. Aligning your goals to your values will help you realise what is important to you. Your goals should be about what makes you happy and what do you want to achieve.   

The best goals are set in phases.  

Have you ever read an article that said something like “reach your goals in 10 steps?” Or “15 steps to reach your goals”. This is not one of those articles. Your Goal setting can be loads of fun. Seriously. Most people think that it is a serious matter and should be approached in a serious light. Now let us switch off that light. Have fun working on your goals.  The reality is we challenge ourselves only when we start with the fun things in our lives. You can start with writing down the most unattainable goals first.. The most important thing to do is just to start the process. One by one you will eliminate the goals as you go along, but you will also remember the fun you had doing it.

Conflicting goals and values.  

If you set goals that are not aligned with your values, you will frequently be conflicted. This would mean that the things that you value most will take preference and your goal that is contradictory to your values will take a step back or will not be achieved at all. This could lead to you feeling like a failure and discourage you from setting future goas. It can also be said that achieving that goal, will not feel as great as achieving a goal that is linked to your own values are.  

 
Goals are part of something bigger.  

Sometimes we also need to know, that not all goals come to an end when we achieve them. That is the best part. You can have many small goals to achieve a much larger goal.  Goals form part of the bigger picture and often, goals are just smaller parts of our bigger goals. This places a bigger emphasis on why it is important to go through the process of discovering your values and determine your goals. Your dreams and aspirations are often the core fundamentals of your goals. To make them real to you, consider drawing a picture, like when you were little. It does not have to be an artist drawing, but it will help you make a deeper found connection with yourself, allowing you to simply be you.

What is your motivation?  

To achieve anything in life, you need to have some form of motivation. That motivation can come from inside you, or from external factors. The things you are more likely to succeed in are the things where we are motivated from within. The drivers that get us motivated from within are the things that are important to us, also known as our values.  

Your values and beliefs are at the core of who you are. By delving into and bringing your values and beliefs from something in your unconscious to being mindful about it, will help you will all your future decisions you need to make, including setting your goals.

If you need help discovering your personal values, book your sessions with a professional coach in our store today.