The main purpose for engaging with a financial adviser is to provide a person and his/her beneficiaries with a strategy to achieve a desired financial position in which they can secure their current financial status and plan for the future. When completing a financial needs analysis, people need to be aware of the necessity to carefully match their financial needs with current affordability and the appropriateness of products recommended. It is therefore advisable to only deal with a fully accredited intermediary with the relevant qualifications and experience as required by the Financial Advisory and Intermediary Services Act (FAIS).
This is according to John Marsden, Executive: Life Advisory at PPS, who states that it is important that any plan aligns with the individual’s current financial situation and life goals. “The plan should fit a person’s specific needs and provide the correct amount of cover in the event of an unforeseen incident that could lead to the loss of income generating capacity or any unexpected expenses. It is vital that everyone has a plan in place and understands that financial products are vital to the implementation of this plan.”
Below Marsden lists some of the key questions that people should be asking their financial adviser in an effort to ensure that their financial plan will fit their individual needs:
What financial products do I need?
As part of the advisory process, a financial adviser should provide you with detailed product advice and education. As soon as the type of cover you need has been determined, the adviser has to assist you to find the most appropriate products to implement into your overall financial plan. Without a suitable product the plan itself is purely academic.
What type of insurance should be a priority?
You will go through various stages in your life and your financial plan will have to adapt according to changes in your health, possessions, wealth and legacy requirements. It is advisable for most financial advisers to first take care of health and life insurance. It is important to ensure that you have good cover in place should you contract a minor or terminal illness, be involved in a car accident or sustain an injury which might then cause you to lose your ability to generate a monthly income.
Short-term insurance provides cover for the tangible assets that you own, such as a house and its contents and motor vehicles. In the unfortunate event of theft or damage to your valuable possessions, sufficient short-term insurance will cover the cost to repair or replace the item without you having to pay all the losses out of your own pocket.
Why is long-term insurance important?
When it comes to long-term insurance, products such as life insurance and incapacity cover is required should the breadwinner become disabled or pass away. In essence, people should protect what they have while they are investing for what they would like to have.
Life cover plays an important role in estate planning to ensure that you have liquidity in your estate so that your assets are managed according to your wishes in the event of your death. By having proper life insurance in place, your beneficiaries ought to have sufficient capital so as to continue to live as you would have wanted them to and not have to sell any of your assets in order to cover expenses, settle debts and pay taxes following your death.
These products are especially useful for business owners to ensure that their business interests are protected should they or their business partner pass away unexpectedly.
Do I need to have income protection?
Essentially, you are your biggest asset. Most people do not realise how much it would cost them to replace their monthly income for their entire lifetime should they fall sick, become disabled or permanently incapacitated. Income protection is vital as it will replace your salary should an unfortunate event such as disability or terminal illness impact you and will enable you and your loved ones to maintain your current standard of living.
What will happen if I am underinsured?
The impact of underinsurance when it comes to life cover can be devastating for your dependents. The last thing you want is for your family to be left struggling financially, or even worse, with the burden of debt should you become disabled or pass away.
When it comes to short-term insurance, you need to ensure that your policy will cover your assets sufficiently in the event of loss or damage. Should your policy only cover 50% of the value of an expensive item, the insurance provider will clearly only pay out 50% of your claim in the event of damage or loss. You will be expected to pay the additional costs out of your own pocket.
“A financial plan should effectively be independent of financial services products – it should be evaluated on the attainment of a specific financial goal. A good financial adviser/planner will listen to their client, ask appropriate questions and then provide a comprehensive plan. A strong adviser will also guide their clients through the complexities of financial products. Due to the fact that every person has different life circumstances, goals and family structures, it is imperative that each individual has their own tailored financial plan. There is no one-size that fits all solution when it comes to financial affairs,” concludes Marsden.