Opinion – How to properly manage debts and guarantees
Dieter Ian Tide
Excessive consumption and lack of financial planning are the main reasons why the majority of Namibian debtors are currently experiencing tremendous emotional turmoil and family conflict.
If you and your beloved spouse who are married in community of property are considering buying things and incurring high debts, ask yourself the following questions: Do we need this or are we religiously following a certain trend/ ideology? Can the purchase be postponed? Would paying cash be more advantageous? Can we afford it?
What exactly does my liability for the debt entail and, perhaps more importantly, what does my spouse’s liability entail in the event that he/she should die before the debt is settled? What interest is payable on the outstanding balance?
Can the terms of reimbursement be revised in the event of unemployment for one or both of us? Can debt be insured when the proceeds of a life insurance policy will surely help settle a crippling estate
Debt can certainly be insured, but there are other events, as evidenced by the agonizing demise of our national airline, which can certainly pose a huge (and entirely unnecessary) risk to your financial, marital and psychological.
Even if the debt can be insured, will the proceeds of an insurance policy assigned to a commercial bank be sufficient to cover the outstanding balance on the principal amount as well as the exorbitant interest often imposed by banking institutions?
Commercial banks often require collateral or collateral from their customers, i.e. an asset of significant value or more or less equal to the credit so extended or facility which can be used by the bank to settle any outstanding balance. outstanding payment.
The debilitating impact of the coronavirus has caused customers/debtors to default on their monthly payments and in doing so exposes the bank to overwhelming risk.
Insurance companies have also had to deal with a significant increase in claims submitted by their customers.
Regulators such as Namfisa (Financial Institutions Supervisory Authority of Namibia) have been overwhelmed by consumer complaints due to insurance companies’ rejection of valid claims according to policyholders.
Our courts are flooded with litigation arising from insurance claims.
When a life insurance contract has been assigned to a banking institution, the designation of a beneficiary will not be necessary because the proceeds of the contract will be used to settle the outstanding balance of the loan on the death of the debtor.
If the balance has been settled before the death of the debtor, the assignment will be released and a beneficiary will therefore have to be named for the remainder of the policy benefit or the beneficiary designation may be omitted resulting in payment of the proceeds of the police directly to the estate. where it can be used to cover future estate expenses.
Suppose a number of credit agreements have been revised by commercial banks to take into account wage cuts or job losses. Repayment periods have also been extended or monthly payments may have been reduced.
As far as insurance companies are concerned, are you still able to pay the monthly premium for a life insurance policy that has been assigned to a bank as collateral?
If you are unable to afford the above premiums, please consult your financial advisor/broker to help you eliminate some non-essential expenses.
Life insurance policies or rather the proceeds of a life insurance policy ensure the solvency (assets/income greater than liabilities/expenses) of a deceased estate.
An insolvent estate (liabilities/expenses exceeding assets/income) will often result in real estate being sold (at less than market value) to cover estate expenses.
We invite you to do the following:
In light of our rapid economic decline, speak to a licensed financial advisor/broker for a comprehensive analysis of your financial needs.
If you are the registered owner of real estate, make sure you have sufficient bond insurance which will cover not only the principal amount upon your death, but also the additional interest on the unpaid balance. The cover amount would in all likelihood have to be increased to cover a heavily inflated interest component often imposed entirely at the discretion of a commercial bank and less transparent to a debtor.
Don’t let a pledged insurance policy expire due to nonpayment. The commercial bank’s cession or guarantee department will certainly raise a red flag if this happens.
Speak to your insurer about the validity of a future claim or any act/omission or circumstance that may prevent a valid claim from being processed. Stress test that the policy benefits!
Discuss with your commercial bank the validity and adequacy of an existing assignment and how increased exposure to an adverse economic climate can be constructively managed.
Have a plan B. This will often require finding additional financial means to settle any future debts, which would otherwise have been covered by the proceeds of a life insurance policy.
7. Real estate can also be transferred to a potential heir/transferee (son/daughter/grandchild) while the registered owner is still alive, resulting in a decrease in the value of the estate and therefore expense. .
Apply for and obtain legal insurance. If your surviving family members or the executor of your estate are determined to take an insurance company to court for refusing to process a valid claim, they will need an attorney and they will not assist them as free (no charge) basis.
Consult and have a valid last will drawn up by an experienced lawyer.
Carefully review all financial implications with an experienced financial advisor/broker and your lawyer before signing the above document. A will and an estate plan are essential to your financial well-being. and in conclusion. Think before you buy!
*Dieter Ian Maree is a lawyer admitted to the High Court of Namibia practicing under the name and style of Maree & Associates.