Making Sure Your Family Is Financially Protected In The Face Of Life’s Uncertainties

Whether you are a mother or father, managing the finances of your household is always a decision that takes disciplined planning. There are many direct and indirect factors that need to be considered when discussing how to best manage the finances of your household. This would include assessing current income against expenses as well as making provisions for future incomes and expenses.

You may be in control now but what if something were to happen to you? Would your family be financially okay? Would there be adequate provisions to sustain their needs and current standard of living? or Would they have the know-how on how to plan without your input? Below are a few factors to consider in order to help you avoid such a situation:

1. Make adequate provisions for life cover.

Many people know what life cover is but not many people understand the value it adds, so let’s look at the purpose of life cover. Life cover can be used, for example, to cover debt obligations such as a mortgage. Should the unthinkable happen, you need to make sure that your family is not selling assets such as the house to cover debt obligations.

Another very important point to note is that life cover offers liquidity to your estate. This could be used to settle taxes such as inheritance tax or capital gains tax, pay fees such as executors fees, cover expenses such as funeral expenses or alternatively leave your family with sufficient funds to sustain their current lifestyle.

Although some employers do provide some level of life insurance, it is seldom adequate in terms of a holistic financial estate plan. If your employment is terminated or you resign, the cover falls away. As it is not in your own personal capacity, the cover would be cancelled and you would then have to apply for cover, subject to a medical, at that particular point in time, which may not be ideal nor cost-effective. This is also why it is highly advised to ensure adequate cover is in place sooner rather than later, as generally speaking younger and healthier applicants will pay lower premiums than older applicants.

Life Cover Term

The term of the life cover needed is also an important factor to consider. If the purpose of the life cover is to cover a mortgage of which you have 15 years left, then the term of the cover should mirror that of the need. Equally so, if the purpose of the cover is to create liquidity in your estate, whole of life cover should be selected as opposed to term insurance.

In essence, the truth of the matter is that, if you don’t want your family to struggle to pay the bills nor struggle to put food on the table, consideration of life cover is essential. It is arguably the most effective tool you can use to protect your and your family’s current lifestyle.

2. Review your financial planning regularly and keep your beneficiaries updated

It is essential to review your financial planning at least once a year and make sure everything is still relevant and applicable to your financial circumstances. A critical component of this is making sure the correct beneficiaries are stipulated on your policies. As simple as this sounds, if unchecked, it can have serious ramifications.

As an example, many people have savings vehicles which they initially contributed into when they first started their careers. It is unlikely that the beneficiary at inception of the policy would be the same in, let’s say, 25 years’ time. Imagine your entire savings going to the wrong beneficiary as opposed to your spouse and children should anything happen to you. This could leave your family in a serious financial situation. Imagine a situation where your ex-spouse inherits most of your assets or your latest child being disinherited. It must also be noted that a beneficiary designation on a policy overrides what is written in a will so ensure that all your beneficiary nominations are updated and relevant.

3. Ensure your Will is correctly drafted and up to date

A Will is incredibly important not only because it dictates who will inherit your assets but because it all dictates how your estate is to be wound up. It is your final instruction to the executors to preserve the wealth you have created and ensure it is passed on to the next generation in the most tax effective manner. Unfortunately, many people forget about their Will, especially when they are young. It is critical that you have a Will in place and that the Will is applicable to your geographic location.

For example, a Will in the UK has no jurisdiction on how your affairs and assets in the UAE will be dealt with should you pass away in the UAE. It is also imperative that your Will is a legal, valid Will and conforms to all the necessary laws and regulations. A further important point is ensuring that the guardians you appoint in your Will are aware of their appointment as guardians and have the capabilities to act as guardians, that is, they are in the same country or a country where you wish your children to live. It is also highly advisable to ensure your executor, spouse and guardians all have a copy of your latest and updated Will.

4. Consider creating a trust

A trust is a great tool to use in protecting ones wealth. There are generally tax benefits to having assets held in a trust but probably its most effective feature is the ability to ensure the flow of wealth to the beneficiaries in a timely and tax efficient manner. A trust is also a great tool to use in a Will should there be a simultaneous death of both parents. It will ensure the wealth is held in a vehicle, administered by trustees for the benefit of the children and disbursed to your children according to your wishes which can be stipulated and then executed by the trustees you appoint.

5. Make sure your family is aware of your financial planning

It is very important that financial planning in a household is not done separately from your spouse but rather in tandem. As simple as it sounds, ensuring that the surviving spouse is fully aware of the financial planning measures that are in place as well understand what the ultimate goal was can really ensure the estate is dealt with in a timely and effective manner. Having all involved parties, such as your spouse, guardians or trustees, aware of your estate plan is key to the successful and smooth execution of your wishes. This also allows your loved ones peace of mind and measurement that everyone is on the same page.

6. Keep a life folder

A very popular tool is the use of a life folder. This is a folder that contains the most important and relevant documents such as your Will, policies, bank account details, passwords etc. Ensure that this is kept safe and your spouse or applicable persons have a copy of this information should anything ever happen to you.

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