The Fat Wallet Show with Kristia van Heerden

Podcast: Life insurance as inheritance

In Latest, The Fat Walletby Kristia van Heerden

This is not the first time I’ve heard people buying insurance products to leave money to loved ones who aren’t financially dependent. In cases of premature death, it’s genius (aside from the dying). However, insurance companies are money printing machines because they understand how to harness probability.

When you take out a life insurance policy, the insurance company works out how many years of contributions they’re likely to get from you before you hop off your mortal coil. They do with your money what you should be doing with it – they invest it. They understand money today is worth more than money tomorrow. If this didn’t work, the insurance industry would not exist.


Lady Kabelo is thinking about life insurance.

It would only be to give my folks, my sister and my partner a nice lump sum when I die, not because they depend on me financially.

I just feel tired of black people dying poor, leaving relatives to scrounge to bury us. I want to leave them with money to bury me and then mourn with bubbles or, if they listen to me, put the lump sum in a retirement fund for future comfort.

You could argue that I should invest that money and they will inherit that. But if I die next year, it wouldn’t have grown to a considerable amount. Life insurance would pay out a nice amount between the four of them.

Is my thought process as crazy as I think it sounds, or would this fall into the category of making your money align to your values? I love my people and if I can put some money aside now so they get some money when I die, why not?


Win of the week: Cheryl from The Fat Wallet Community.

Nedbank offers a Greenbacks shop card which allows you to draw your Greenback value in cash from any Nedbank ATM. You could then use this cash to buy your bubbles. I draw mine once a year in December and use this money towards Christmas. I try to get Christmas for free – using Dischem, PnPay points and greenbacks to pay for gifts and christmas lunch shopping. Not 100% achieved but getting closer every year.


Cleaned bleeped show is below.


Jacob

I have a debt problem that I need to address, but my wife is not helping. She is also in debt and her business is not making enough money. How do I convince her to start a financial plan so that we can address our debt problem in order to be able to buy a house?


Gerhard

Just listened to Simon’s JSE direct around the changes in CSEW40.

The question I was waiting for but that never came, is what will the impact be on the TER of the ETF if they make the change.

It doesn’t help they smooth the ride, but in the end you lose because of fees.


Bella

I had been investing R500 per month with Discovery Retirement Optimiser Endowment policy for the past 10 years. It grew by 13% in that time.

To say disappointed is an understatement, seeing that I’m just 10 years away from retirement age.

I’ve decided to take the plunge and invest in ETFs with the proceeds from my unit trusts and endowment policy.

I’ve recently transferred my RA to etfSA and also opened a tax-free account. I’m contributing  R1500 p.m towards Coreshares Global Dividend Aristocrat, Coreshares S&P 500, Satrix Emerging Market, Ashburton Global 1200.

Should I open up a discretionary account (with EasyEquities perhaps)? I’m looking at offshore ETFs but unsure on what that spread of the funds should look like. 

I also have an investment property but my tenant has lost his job and is paying a lot less than the amount I’m asking for, and I’m not sure for how long he will even be able to keep this up for.

Should I just consider selling and investing these proceeds as well?


Martinus

My 14-year old car said its final goodbye and had to get a new car sooner than I expected. I only had 50% of the cash on hand to purchase the new car, then I had to to either take out a loan for the reminder, or take money out of my TFSA or a paid up RA. I figured the wiser choice was the loan since drawing from the capital of a TFSA so early hamstrings your future growth.

Considering a high interest car loan, would it be wiser over the long term (20+ years) to put that R2750 pm that would go to a TFSA to paying down the loan and then miss out on the TFSA allotment for a year?

My math shows that if I pay an additional R2500 a month on my car loan I’d pay it off 21 months early, saving me R24150 in interest and R1449 in fees.

I’m leaning towards paying off the loan, because it’s the first time in my life I have debt and I really don’t like it.


Boitomelo the Diplomat

I am looking at increasing my RA contribution. I started with a low amount 2 years ago. I’ve read that 27.5% is the maximum tax benefit I can get towards my annual RA contribution. Is this 27.5% of my contributions to the RA, or of my taxable income? If it’s based on my taxable income, how does a person in my position determine what my maximum RA contribution would be since I do not pay income tax?

Secondly, given that my contracts will expire in 6.5 years and that I’ll be without formal employment, is increasing an RA a good idea given that I’ll only access it at 55? It leaves me with an 11-year access gap. I will be looking for a job and other alternative sources of creating income, one of which will be to provide editing and French translation services which I can’t currently do.

I know that freelancing is not easy and that one should be sufficiently financially prepared for it. Should I rather keep the RA contribution as is with a 5% annual escalation, and look into alternative investments options for purposes of creating an income for that 11-year gap at the end of my official ‘formal’ working life? If so, what investment vehicles would you recommend?


Tristan

I think you said you use your tax refund for tax-free deposit. What about adding it back to your RA each year? Wouldn’t that have a cumulative refund benefit? Going into the tax free account means no more instant rewards, you have to wait a decade.

My half-thought out idea is to try hit 27.5% each year, e.g. dump in and top-up any bonuses. My thinking is that it’ll be easier in future years because of maxing out my refunds.

The end result should be the same as if my bonus was deposited directly into my RA rather then losing much to tax.


The Fat Wallet Show with Kristia van HeerdenThe Fat Wallet Show is a no-nonsense personal finance and investment podcast hosted by Kristia van Heerden and Simon Brown. Every week we answer questions by a growing audience of finance enthusiasts. Submit your pressing money and investment questions to ask@justonelap.com.

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