Financial Angles

We met up with our long time financial adviser, and it was quite a surprise to hear about the changes to the financial system – insurances and savings are now completely separate.

The present climate is pretty awful for savings and investments, and there really is no with-profits type of insurance anymore.

ALL savings have the same tax breaks  -so Individual Savings Accounts (ISAs) are not terribly attractive anymore. Most other types of account have better interest rates!

It was a real eye-opener! What a bizarre world.

It looks like funeral costs will have to be from Term insurance, Whole-Life insurance, or borne at the time from whatever cash is to hand.

The good news is that we’re in a better position that we’d thought (mostly by chance).

Years ago, an incorporated company needed a minimum of two directors. This changed and so my latest business had just me as the sole required director when I started it up.

However, when my daughter was ready for nursery, because my wife was not back at work, and we were not claiming state benefits, a nursery place was impossible!

The only way around this was to employ my wife, and so my children were able to get places at pre-school nurseries.

And that was the way we left it – until the changes in workplace pensions of late meant that she had to become a director to avoid all that.

This is a really good position to be in as it turns out; this is our main income source, so if anything happened to either one of us, the survivor would be able to continue access to the money without having to do anything.

There is no point in opening a joint bank account because our individual accounts are barely used, and are mainly fed from whatever we chose to transfer from the business.

All we have to figure out is what happens to the business should anything happen to us both at the same time.

We do have savings, so we have decided to look at splitting this lump into two – one invested in something ethical but risky (and so higher on our ROI) – maybe something like equity crowdfunding or an angel investment, Crowdcube, or Seedrs type of thing – which may be fun if a wee bit too risky. Then again, it may just be safer yet still better than the high street with  a P2P/ Peer-to-peer social lending set up (the old marketplace lending scenario is getting good press lately eg Zopa is returning a whopping 7% just now), the rest probably ought to be in a bank or building society – a joint account with good access.

The plan is to use the savings account to cover funeral costs, the business account for the day-to-day living costs and bills immediately following a death, and the higher yield investment to take care of the children’s future whatever happens.

A check on Moneysavingexpert shows that the rates are all terribly low, and that current accounts are better than savings accounts! West Bromwich Building Society offers an easy access account at 1.05%, better rates mean locking away the cash.

Anyway… we’re on the case. The limitations and restrictions mean that everyone is in the same boat, and that everything is actually a lot simpler too. So there is that.

Life Cover Death

OK, so there is a risk of unexpected costs in leaving my body to research, meaning that I need to still consider paying for funerals somehow, and if funeral plans are out of the question, then how can I make sure the costs are covered?

I have savings in various accounts – but I just realised that these accounts get frozen as soon as I die, and becomes part of my estate – so I am now worried that my wife will be unable to access money to cover my funeral costs – or even to continue with the costs of running the house and family.

I suppose I could simply set up a joint account and then whoever doesn’t die gets sole control of the account.

Some kind of investment is required. That much is clear – but how do I arrange this to work upon my death? How do I arrange for the investment to be accessible by my widow or family, and not be frozen into my estate?

Maybe if I did not leave a will, everything would simply transfer to my widow, and vice versa. I don’t know how quick the transfer may be. I’m guessing that the tax man might want to be involved, which might mean there is a financial problem for at least a period – and people will want paid – fees and charges as well as tax. That’s not the best time for complexity – and that is exactly what I am trying to avoid.

I think people exploit the situation to their own advantage. I can fully appreciate how attractive it is to allow someone else to take care of everything – and you just hand over money – whatever it costs.

This could be where Life Assurance comes into play.  If I remember rightly, there are two main types – Term and With-Profits (or Endowment) policies.

The Term insurance is about paying a small premium every month until the term is up – it only pays out on death during the term, whereas life assurance policies can be joint, can be cashed-in, offer bonus pay-outs on death and so on.

This is all from memory of getting mortgages over the years – I remember getting a Capital & Interest Mortgage (constant net rate annuity mortgage), and each monthly payment was made up of repaid capital and calculated interest – and I had to get Term insurance as security for the loan – to cover paying-off whatever capital was outstanding on death so the lender wouldn’t lose out and my debt would not be inherited.

Whenever I had an Endowment Mortgage, I paid only interest each month, and the policy was designed to pay off the whole capital on my death – with “terminal bonuses”. These mortgages got a good name because of this, but then got a bad name because they failed to pay off the capital when the mortgagee did not die before the term!

It looks like I need to talk to a financial adviser. The trouble is deciding on the amount of cover – I still do not know how much a funeral will cost today let alone in years to come!