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16 October 2015
Life can be unpredictable. Without contingency planning, unexpected events if not planned for, costs and will erode your and your families' financial security.
Outstanding debt and loss of income scenarios must be covered by risk benefits preventing the need to tap into current long-term investments. Naturally if you have enough capital, the need for cover dissipates.
Life assurance is a subject most people don’t like to think about, but if you have a family - you need to provide for them. It is important to think about the effect on them if you were to die. Even if the mortgage is paid off, would this really be enough to keep the wolf from the door when you are gone?
Tips for preparing for unexpected life events
- Maintain a cash reserve that covers three to six months of expenses
- Cover your risks with life, illness, disability and income protection assurances. Yes, pure assurance might never benefits you but is essential when: You have a family [spouse and/or children] and your death will result in financial hardship through the loss of your income You have debt and before anyone can inherit such debt must be settled Your personal estate is sizeable and executors’ fees and other costs have to be paid out from your estate You want to ensure that there is sufficient cover death duties and capital gains tax on death You are in partnership with someone [in a business, be it a close corporation, Pty Ltd, or a plain partnership] and have not made a succession plan As an example, let’s say you and "Peter" own a successful franchise business on a 50/50% basis worth an estimated R8m. What’s more, you have put in an extra R3m into the business, giving you a credit loan account of R3m. The business still has cash flow limitations as it is in a growth phase.
Let's say that you are hit by a car as you are crossing the road and you die. My question: how is your family going to extract R7m from a business with cash flow limitations?
One thing is your death, but your family has a right to an asset which cannot be accessed.
The only way of avoiding this financial tragedy is for each partner to take out life assurance on each other's life and for Peter to take an extra R3m on your life. You also bind yourself via a contract in order to "legalise" the whole affair. - Make sure the beneficiaries on all of your accounts are up-to-date
- Have an up-to-date Last Will and Testament
- Provide your beneficiaries with the information necessary to access your accounts, and contact information for your lawyer and financial advisor
- Do a Financial Health Check with your financial advisor
At Silke Financial Services we have the skills and tools to truly assess whether you need life assurance and can help you prepare a financial plan to help you get through the unexpected.
Regards,
Shane Thom, CFP® GTP(SA)™
Managing Partner: Integrated Wealthcare |
