Tuesday, April 26, 2011

THE EASY GUIDE TO ASSET CLASSES

Defining what asset classes are may seem trivial, but it is important because these are key components of a diversified portfolio. Each asset class needs to have a specific risk- return function, the detail of which many employers and members may not fully grasp. We hope that this simplified guide will be useful.

What does an asset class mean?
An asset is a piece of property that can be sold for cash, or traded for another property of equal value. Common asset classes include:
-Equities (stocks)
-Fixed income (bonds)
-Cash equilivants (money market instruments) and
-Property (real estate)

Each asset class includes assests bought and sold in the same way. The assets in each class also have the same guidelines or laws governing how they are traded, bought, or sold. Generally, assets in the same asset class also experience similar results in the marketplace. For example, when a stock market is said to be down, many individuals stocks lose value.

Equities (stocks)
Company shares sold on the open market or over the counter make up the stock asset class. Historically, equities have experienced more volatility than other asset classes. Due to increased risk, returns can be higher than in other classes.

Fixed interest/ Bonds
Debt instruments issued by companies, and federal and municipal governments, are included in the bond or asset class. A company issues bonds to raise money. Investors purchase the bonds and earn a fixed interest rate. Generally, bonds have less risk than equities.

Cash/ Money Market instruments
Cash equivalents or cash accounts are usually provided to investors by banks, credit unions, and investment firms- such as Money Market accounts. Investors earn interest similar to that of a savings account and, similarly, the returns may be lower compared to the other asset classes since there is much less risk involved.

Property/ Real Estate
To invest in the property asset class, buyers need to purchase real property. They can also participate in this market by purchasing investments in other asset classes. Options include buying shares in a real estate exchange traded fund (ETF) and purchasing shares in a real estate company.

Source: The Corporate Adviser (Old Mutual)- issue April 2011- 01

Wednesday, April 20, 2011

KEEP CESSIONS AND BENEFICIARY INFORMATION UP TO DATE

Each year, thousands of life policies are ceded to financial istitutions, usually as security for a debt such as a bond, loan or overdraft.Cessions play a important role for many people in gaining access to finance, giving the lender a comfort in the knowledge that their loan will be repaid in the event of their death. Unfortunately, few people take the time to understand the implications of a cession and the impact on nominated beneficiaries, usually loved ones. Even fewer people actually cancel cessions once their debts have been paid off, leaving potentially serious implications for beneficiaries should the policyholder die or become disabled. The best person to help you with this is your financial adviser.
Craig Harding, managing director of Altrisk says that policyholders need to know the ins and outs of cessions and consider all the scenarios and implications for their beneficiaries before signing on the dotted line. "The reality is that if you cede a life policy, or even a portion thereof to another party, the law provides that the cessionary will be paid before any other party. It is also not necessary for the beneficiaries to give any consent to the ceding of a policy and they may not even be aware that a cession exists.
"The harsh reality is that ceding an insurance policy, for example to provide security for a loan such as a mortgage, could leave your loved ones without any source of income if you die. The cessionary will take what's due to them first and any surplus could end up in your estatewhich could take months to settle before they see any financial relief," explains Harding.
Given the above implications, it's vital that policyholders understand what a cession is, the different types of cessions, how to implement and cancel a cession and what the considerations are before ceding a policy. Once again, the best thing to do is to consult your financial adviser so they can factor existing cessions into your financial plan. The status of cessions should then be part of the regular financial review.

What is a cession?
A cession is the transfer of the rights to a policy from one party to another. The party acquiring the rights is called the cessionary. The party giving the up the rights is called the cedent. A policy can be ceded in two ways:
-Outright cession- all rights in terms of the policy are transferred to the cessionary and all proceeds of the policy are paid directly to the cessionary in the event of a claim and not the previous owner, his/ her beneficiaries or estate.
- Collateral security cession- in this instance the policy will be ceded as security for a loan, typically for a home loan. The cessionary's rights are limited to receiving the lower of the claim proceeds and the amount of the policy owner's liability to the cessionary. All other rights of ownership of the policy remain with the ploicy owner.

If the policy is ceded, the rights of the cessionary takes precedent and will be paid before any payments to nominated beneficiaries.

Implementing a cession
Before ceding a life policy there are a number of steps that need to be followed:
- check your policy document- it should contain:
*rules relating to the nomination of beneficiaries or to ceding the policy eg can the policy be ceded.
*the requirements (including forms)to cede a policy or nominate a beneficiary
* how a cession will affect existing beneficiaries
* how to cancel a cession.
- Check the debt agreement you have with the bank or creditor may contain provisions regarding cessions and may stipulate how the creditor will deal with any surplus funds in excess of your liability.
- Go through the cession document is where you will cede your rights to the policy as security for a debt and may also stipulate the effect the cession will have on an existing beneficiary nomination.
- The beneficiary nomination document names the beneficiary to a policy and it may also contain provisions regarding the effect than any subsequent security cession will have an existing beneficiary nomination.
-Make sure you understand who has the right to cancel the cession. "The exact effects od ceding a policy as security for a debt will be governed by the wording of the various documents involved, so it's vital to thoroughly study these documents and asess their impact in various scenarios
- your broker or financial adviser will be an important source of information in this regard,"says Harding.
You should be aware of the following:
>Where the creditor pays any balance into an estate, it may attract additional unforseen costs.
>Even if you have paid off your debt but failed to cancel the cession, the insurer will pay the policy proceeds to the cessionary instead of to your nominated beneficiaries. Aside from the possible unforseen costs, there is also the time required to resolve the estate to consider and its impact on the beneficiary's liquidity.

Cancelling a cession
In order to reinstate the beneficiary and policyholder's rights the cession must be cancelled. "In the case of an outright cession, or a collateral cession where the right to revocation has also been ceded, the institution to which the cession was made must cancel it in writing. This releases you of your responsibility and confirms that you no longer have a debt in this regard. which in turn must be communicated to the insurer. In some situations a cession will revoke an existing beneficiary nomination even if the cession has been cancelled- in this instance it is essential that you make a new nomination and record this with your insurance company," explains Harding.

Friday, April 15, 2011

LIFE, CRITICAL ILLNESS AND DISABILITY COVER SHOULD BE A FINANCIAL PLANNING PRIORITY FOR YOUNGER CLIENTS

I'm young and healthy so do I really need all this life and critical illness insurance cover?
It's a question that many young individuals often grapple with, and for the most part, many leave getting their finances in order too late.
This is according to Craig Harding, managing director of Altrisk. This view is further highlighted in the 2010 Life and Disability Insurance Gap Study which shows that South Africans remain seriously underinsured. The 2010 study commissioned by the Association of Savings and Investments of South Africa (ASISA) and conducted by True South Actuaries & Consultants warns that South Africa's income earners aged 16 to 35 would not be able to sustain their way of living even remotely based on the current insurance cover.
"There's a tendency to think that life, disability and critical illness cover is something that you worry about when you're older- not when you're in your 20's and bolstered by superhero bravado. The reality is, the sooner you consider life cover the better as the cost of insurance products increase as you get older. If you're unlucky and suffer poor health the cost of your cover will be even more expensive. There's every reason for single people to have a life policy in place if they want to be certain that their parents or any dependants are looked after" says Harding.
"Equally important, if not more so, is cover for critical illness and disability. Few individuals enjoy contemplating the emotional and financial consequences for themselves and their family if they were to contract a serious illness or become permanently disabled. What is often overlooked is the repercussions of an impairment or disability. Will you and your family be in a position to financially provide for ongoing healthcare, therapy and other necessary lifestyle changes? The case for cover for anyone who is self- employed is even more crucial. How will a person's death or illness affect his business? is the business dependable upon him financially? A business owner's death, illness or disability can have far- reaching consequences for many other people" says Harding.
Wally Bodin, an independant financial adviser and planner adds to the debate. "Critical illness or dread disease cover has evolved since the 90's to a modern day 'must have' in financial planning. Planners no longer wait for their clients to reach a 'mature' age to put critical illness cover in place. The fact that a client in their early thirties is healthy is no reason to cover them for critical illness. This wasn't always common practise, but when one looks at statistics for cancer claims, people are being diagnosed at far younger ages than they were 20 years ago, due to medical advances and greater awareness. Recent industry claims statistics reveal that cancer is responsible for 50% of all dread disease claims. Sadly, cancer knows no age. Women are the most neglected market, and ironically, they have almost double the number of claims than men," explains Bodin.
In terms of cover and how much cover is needed, Wally offers the following advice: "An ideal structure would be a level premium pattern. This means that the premiums do not change for the duration of the policy. You might pay more per month when you are younger but you pay a lot less as you get older. By taking level cover your insurance premium will stay the same, so in your later years when you need the cover the most, you will still be able to afford it.
"Should your budget allow, take the longest guarentee term available. Long term planning is essential as this is the last bit of life assurance you are still going to have well into your 70's. Having no cover means you'll have to find the cash shortfall to supplement your loss of income. In terms of how much cover, I believe a good starting point for any cover is a thorough financial needs analysis," explains Bodin.

Still not convinced?
Based on actual experiences in 2010, True South Estimates there'll be 159 034 deaths in South Africa this year and 52 481 diability events. That's 435 deaths and 144 disabilities every day. "The bottom line is most people believe in insurance- some are just not happy to pay for it. Sadly, their families end up paying for it by suffering financially after the death of their loved one, or from the repercussions of the onerous care requirements and costs after an incident, illness or disability," concludes Harding of Altrisk.

SOURCE: MONEY MARKETING- 31 MARCH 2011

Monday, April 11, 2011

A MEDICAL AID MUST SUIT YOUR NEEDS

Peter Edwards- Alexander Forbes

Navigating your way through the confusing maze of medical aids starts with the selection of the scheme.
Peter Edwards, managing director of Alexander Forbes Health, says this decision should include issues of stability and solvency of the scheme, and the innovation and service levels applied by the administrator of the scheme. "Preferably you'd want the solvency level to be around where the regulations require it to be, around 25% of premiums. Anything below that means that means schemes ultimately are under pressure to move to that level, and they have to price in reserve growth" says Edward. "You don't want a scheme that's losing a lot of money, because it would mean having to correct this position with benefit reductions and/ or significant contribution increases."
Look for stability, not a scheme that makes a lot of money one year and loses the next, or has significant changes to its options. Look at past contribution increases. This will tell you whether the scheme is stable and whether increases are introduced in a consistent manner.
"Generally an indicator of stability is size. A larger medical scheme is likely to be more stable and the experience is fairly consistent, given the larger risk base. In a large scheme, one big claim or a series of big claims don't have an impact on the scheme, unlike small schemes where it could be detrimental," says Edward.
It's difficult for an individual who's not directly involved in the market to assess the administrator. That's where the financial adviser, your doctor, and family and friends come in. Another important point is governance. "You don't want a high noise factor around a scheme, with infighting splashed in the press. You want a low noise factor. It mostly indicates things should be going well and that there's stability and it's organised." The base of any medical scheme is prescribed minimum benefits, which schemes are required to cover by law. You must ensure that you choose the scheme with the hospital cover you require. if you rarely go to a doctor, you might be happy with a hospital plan only or savings- based option.
All options have to cover 26 chronic conditions as part of the prescribed minimum benefits. If you have a chronic condition which is not on the list, you will need to consider higher- level options covered by a scheme. Edward suggests evaluating the cost of this additional cover versus covering the cost of your own medication, as it may be less than the additional cost of buying up.
"If your day-to-day needs are higher, such as if you have a health condition or young children, then maybe consider a medical scheme that has more comprehensive benefits than just a savings account or minimum out-of-hospital cover. Perhaps consider one that has an above- threshold benefit or more comprehensive benefits.
"It helps to try and estimate how much you'd need for out-of-hospital costs and take this into account when selecting your option.
"A real problem for people is the detail within a scheme. People often just gloss over it, but it creates massive frustration."

Look at these elements to better understand the detail:


* The first is chronic medication. Can you get medication from anywhere ir do you have to go to a specific network? Most of teh bigger schemes have networks where you can see specific practitioners or get medicines from particular places. In return, you pay less and have the comfort that prescribed minimum benefits will be covered in full.
"Familiarise yourself with those networks. A lot of people don't, and then benefits aren't paid in the way they expected," says Edward
* Affordability is a critical issue and needs to be taken into account in making your selection.
Network plans or lower- cost options often aren't understood. They are not sub- standard. This is clear if you look at the number of doctors that agree to be part of the network. "If affordability is an issue, join a different structured plan."
When getting advice, there are three key things you need to make sure advisers are doing for you:
- First, they must do a thorough needs analysis and ask you about your health status. Are you planning to have a baby? When were you last in hospital?
- They must make their recommendations and indicate why they're suggesting one scheme and plan, and not another;
- If an adviser suggests that you move, he must communicate the differences between where you come from and where you're going, to such as how the contributions and procedures differ.

Friday, April 1, 2011

Daar is redes vir lewenspolis

Veral as 'n mens jonk is, word lewensversekering dikwels beskou as 'n luukse wat jy nie nodig het nie. Veral omdat die persoon wat die lewenspolis uitneem self nie die voordele daarvan kan ervaar nie. As mense boonop nie enige afhanklikes het nie, het dit vir hulle nog minder sin om lewensversekering uit te neem omdat hulle nie 'n "opbrengs" op hul premies verdien nie. Mense verkies dus dikwels om in die een of ander spaarproduk te belê om in hul toekomstige behoeftes te voorsien omdat hulle kwansuis dan kan sien hoe hul spaargeld groei. "Mense se omstandighede kan egter oornag verander, en dan gaan hulle wel sulke versekering nodig hê," sê mnr. Nico van Gijsen, 'n direkteur van Finlac en skrywer van die reeks boeke Kernfinansies wat deur Pearson uitgegee word. Een van die boeke handel juis oor versekering

Van Gijsen identifiseer 6 redes waarom mense lewensversekering nodig het:

Versorging van geliefdes
Enige iemand wil graag dat sy geliefdes goed versorg is as hy nie meer daar is nie, en dat planne vir die kinders nie skipbreuk ly nie. Selfs al verdien die gade wat agterbly 'n inkomste, is dit dikwels nie genoeg om te sorg dat die gesin dieselfde lewenspeil as vroeër handhaaf nie.
Dit kan selfs meer kos om 'n gesin aan die gang te hou as een van die twee gades nie meer daar is nie omdat iemand anders gehuur word om van die pligte te verrig wat die afgestorwe persoon verrig het.

Sakeredes
Baie meer mense moet deesdae na hulself omsien om 'n bestaan te maak en bedryf kleinsake- ondernemings, allen of saam met 'n vennoot. Veral as 'n onderneming as 'n vennootskap bedryf word, is dit baie belangrik dat die twee vennote lewensversekering op mekaar se lewens uitneem.
Die opbrengs uit so 'n polis kan gebruik word om die afgestorwe vennoot se aandeel uit te koop, en sodoende ook vir die afgestorwene se familie te sorg. So 'n polis kan ook vergoed vir 'n moontlike verlies aan inkomste as die afgestorwene besonderse vaardighede gehad het waarvan die onderneming afhanklik was. In die geval van 'n eenmansaak kan versekering nie net vir die afgestorwe persoon se familie sorg as hy sterf nie, maar ook vir die onderneming se personeel wat dalk sonder heenkome sit.
Nog 'n vorm van sakeversekering is sleutelpersoonversekering. Baie ondernemings het persone in diens wie se kennis noodsaaklik is vir die voortbestaan van die onderneming. As so 'n persoon sterf, kan dit die ondernemer help met kontant om die verlies aan inkomste te vergoed totdat 'n plaasvervanger gevind of opgelei is.

Boedelbeplanning
Dit kan 'n duur storie wees om te sterf. Benewens die koste van die begrafnis, eksekuteursfooie en administratiewe koste kan boedelbeplanning die nagelate persone in 'n geldmors laat beland. As daar belasting op 'n boedel van toepassing is is daar wesenlike gevaar dat daar nie genoeg kontant beskikbaar is om dié belasting en moontlike kapitaalwinsbelasting te betaal nie. Dit kan daartoe lei dat van die bates in die boedel verkoop sal moet word om dié verpligtinge na te kom.
Slim boedelbeplanning maak gewoonlik voorsiening vir lewensversekering om dié verpligtinge af te handel.

Skuld
Die meeste mense gaan die een of ander tyd skuld aan om bates soos 'n huis of motor te koop, maar die skuld gaan ongelukkig nie weg as jy te sterwe kom nie. Die krediteure het 'n eis teen die afgestorwene se boedel en die skuld sal eers uit die boedel betaal moet word voordat afhanklikes iets van die boedel kan ontvang.
Dit het dus sin om 'n lewenspolis uit te neem om die skuld te delg as jy sterf om te keer dat jou naasbestaandes skielik sonder geld sit omdat krediteure alles opgeraap het.

Egskeiding
Sowat die helfte van alle huwelike eindig in 'n egskeiding en dit is 'n risiko waarvoor beplan moet word. Veral wanneer die vrou van onderhoudsbetaling afhanklik is, kan dit lol as die man te sterwe kom. 'n Lewenspolis op die man se lewe moet dus deel van enige egskeidingsooreenkoms wees. En wanneer 'n egpaar volgens die aanwasbedeling getroud is, kan daar 'n probleem wees as die lid van die egpaar wie se aanwas in bates die grootste is, sterf. Die persoon se boedel sal dan 'n verpligting hê teenoor die ander helfte wat betaal moet word voordat enige bemakings gedoen kan word. 'n Lewenspolis is die ideale manier om te verseker dat kontant beskikbaar is.

Aftreekapitaal
Dit gebeur dikwels dat 'n egpaar al hul aftreegeld gebruik en wanneer die een te sterwe kom, is daar feitlik niks vir die agtergeblewene oor nie. Dit kan veral vroue wat gemiddeld sewe jaar langer as mans leef. Die opbrengs van 'n lewenspolis is die ideale manier om die agtergeblewene se geldsake 'n hupstoot te gee.

Artikel geskryf deur David van Rooyen, Sake24- 27 Maart 2011