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Peter McGahan
13 April, 2020 01:00
Peter McGahan
HOPEFULLY a few of you managed to bag the shares I mentioned in the column last week? Most of them were up around 30 per cent in the next two days - a nice light in dark times. Keeping your head in difficult times is a tough task, but pays dividends, something many large UK companies will struggle to do this year. In lockdown, there are a few simple things you can do to put your finances right.
Life insurance: Is your plan in trust? Life insurance policies are set up to repay a mortgage, or to provide a lump sum in the event of death. They can also be set up to provide an income for a set period of time. There are a couple of things to look out for. You might want the proceeds of the life insurance policy to go straight to your children, rather than passing into your estate and being subject to Inheritance Tax.
You can simply set up a trust form by asking the life insurance company, and then selecting the relevant beneficiaries and that's it. If there was mortality, the benefits are paid direct, without lengthy probate. Even if you didn't want to pass the money to the children yet, this trust can be set up to pass speedily between the insurance company and a surviving spouse. If you have life insurance, you should ask for it to be checked for costs and benefit.
All too often we see life insurance products set up with banks and insurance companies that are much more expensive than they should be. By asking an independent financial adviser to assess it, they will run it through their quote system, and either reduce the premium down to the most competitive company available, or use what you are paying to achieve better cover.
If you are a director of a company, consider using a relevant life policy instead of a normal life policy. With a relevant life policy, your company pays the premiums and as such they save you significant tax. When you pay yourself, you pay tax and national insurance (NI) and the employer pays NI and then buy the cover from the net premium. Instead, the company pays it and it's paid before tax or NI. A complete no brainer. If you are in a pension scheme, please complete the expression of wishes form. This informs the trustees of the scheme who you would prefer to give the money to, and it is normally paid to them free of inheritance tax.
If you haven't made, or updated your will, this is the time to discuss it and finally nail it. If someone passes away without making a eill (intestacy), the costs of dealing with this are significant, rather than the simplicity of executing a will according to the wishes of the deceased. Moreover, the stress of family arguments is to be avoided at all costs.
Do you have any unnecessary credit card debt? Look at the annual cost of that debt. It is crippling. I covered this recently in an article showing an example we had seen of a person paying 49 per cent on one card, and other cards were 25 per cent. They could only afford the minimum payments so we approached the card company and showed this was a persistent debt and they had to do something about it. We had the rates frozen to zero for a six month period, and lowered for the other companies, and at the end of that period had the debt added to the mortgage.
The rate on the mortgage was 1.49 per cent, but would be close to 0.64 per cent now. That's the equivalent of 76 years at the 49 per cent rate, and 39 years at the 25 per cent rate comparison. The saving in interest meant that within three years, all the debt would be repaid.
It's a difficult time for everyone, so any reader of the column can email below and have any of the above checked in a complimentary conversation with a member of our team. Just quote the column headline above.
Peter McGahan is chief executive of independent financial adviser Worldwide Financial Planning,
