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Stay on top of your repayments

Oct 1, 2020

Most agreements to suspend debt repayments or monthly premiums have come to an end. Make sure you understand how this will affect your finances.

Stay on top of your repaymentsIn the initial stages of lockdown, most banks, insurers and retirement product providers offered installment or premium waivers to distressed consumers. In the case of vehicle insurance, many insurers automatically reduced premiums as policyholders weren’t allowed to drive anywhere.

Depending on when you took the relief, your financial commitments may have resumed, or will do so shortly. Make sure you stay on top of the details and know when those premiums or installments are due.

If you are not in a position to meet the payments, you need to contact your provider sooner rather than later.

In terms of life insurance premiums, Hennie De Villiers, deputy chair of the ASISA Life and Risk Board Committee says while it may differ slightly from company to company, in general companies offered a premium break of three months from the date the client requested it, rather than for a specific calendar period.

Some products, like Liberty’s Lifestyle Protector policies, included a premium flexibility option that enabled clients to reduce premiums and benefits for up to six months. In terms of funeral products, clients could skip a premium.

According to Liberty, over 10 000 clients made use of the flexibility option and 30 000 funeral product clients made use of the premium skip, with 60 000 making use of premium relief options on investment products like retirement annuities and endowment policies.

Many people are not in a position to resume paying their premiums, either because they have lost their jobs or because they are self employed and their income has still not recovered.

What options are available?

If a client is still not able to pay their premiums, the policy will probably lapse. But De Villiers says various options are available:

  • If the client has savings policies with the same insurer, they might be able to come to an arrangement for the policy’s premiums to be paid from the savings policy.
  • If the insurer has a loyalty programme in which financial value has built up over time, they might come to an arrangement to cover the premiums for a longer period in return for a reduced loyalty pay-out when it becomes available.

“In general, we would suggest that the client consults their adviser to revisit the total financial situation and decide where to reduce spend considering the whole portfolio. Another option might be to reduce cover (and thus premiums) rather than to totally lapse it,” says De Villiers.

Contribution break for employee retirement funds

Many companies suspended contributions to their employees’ retirement funds. Fund trustees set the time period of the contribution break but these were typically between three and six months.

Michael Prinsloo, head of products at Alexander Forbes says in order to assist members whose employers were part of their umbrella retirement fund, they allowed for a contribution break of up to six months within the legislative framework, but it was not compulsory.

“Ideally for members’ retirement outcomes, we want this to be as short as possible. Employers varied in application of this from one month to six months. Typically risk benefit premiums were continued to ensure cover,” says Prinsloo. That means most fund deductions will be starting again, unless the employers are facing closure or liquidation.

When it comes to loans, individual banks are handling it differently, generally offering customers different solutions based on their risk management policies, as the initial payment holidays come to an end.

According to Nedbank, payment holidays expire in accordance with what was agreed to between a client and the bank. Even if you took the payment holiday, Nedbank recommends that as soon as you are able to, start those payments again as the payment holidays typically result in an increased number of payments at the end of the initial term of the loan.

Clients should contact the bank regarding resuming debt payments, if they are uncertain.

If you are still not able to resume your repayments, you need to have a conversation with your bank regarding your options. If you have been retrenched you may be able to claim on any credit insurance on your short-term credit agreements, or even in some cases your home loan.

As lockdown eases, now is the time to review your finances. Where possible, make up for any payment holidays and if there is no light at the end of the tunnel, take action sooner rather than later.

Cut your car insurance premiums

Data collected from vehicle recovery business Tracker in the first month of lockdown the average South African vehicle owner drove 1 150 kilometres, spent 30 hours less on the road and saved R1 350 in fuel costs compared to before the lockdown.

If you are still working from home and mostly shopping online, you should speak to your insurer about reducing you car insurance premiums based on your reduced usage.

Last month Old Mutual Insure launched a WhatsApp chatbot called UBI (user-based insurance) that could save policyholders up to 30% on their premiums each month if they drive less now compared with their pre-COVID19 driving habits. UBI enables Old Mutual Insure policyholders to use their phones to photograph their odometer readings and send a pic of their personal vehicle mileage each month.

Catch up those payment holidays

If you still want to pay off your home loan over the original period of the loan prior to the payment holiday, you need to increase your bond repayments once you can afford to. In a year’s time, you could increase your bond repayment by 5%. So a R10 000 mortgage repayment, for example, would increase to R10 500 a month. You will pay off the loan sooner and save a significant amount in interest.

You can increase the repayment in three ways:

1) Simply deposit the additional amount into your bond account monthly;
2) Request that the bank increases your monthly debit order by this amount;
3) Request the bank to restructure the loan in order to shorten the term to 175 months.

All three of these choices will have the same effect on the overall cost of credit and repayment term, thereby undoing the effect of the payment holiday.

Related posts:

This article first appeared in City Press.

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Maya Fisher-French author of Money Questions Answered

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