Dieter Ian Maree
Excessive consumerism and a 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 plan on buying stuff and incurring towering debt, 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 beneficial? Can we afford this?
What precisely does my liability for the debt entail and more importantly perhaps, what does my spouse’s liability entail in the event that he/she should pass away prior to the debt being settled? What is the interest payable on the outstanding balance?
Can the terms of repayment be revised should one of us or both become unemployed? Can the debt be insured where the proceeds of a life insurance policy will certainly assist in settling a crippling estate
liability?
Debt may certainly be insured but there are other events as was evidenced by the agonising demise of our national airline that can certainly pose an enormous (and quite unnecessary) risk to your financial, marital and psychological wellbeing.
Even if the debt can be insured, will the proceeds of an insurance policy ceded to a commercial bank be enough to cover the outstanding balance on the capital amount as well as the outrageous interest often imposed by banking institutions?
Commercial banks often require collateral or security from their clients, i.e. an asset of significant or more or less equal value to the credit so extended or facilitated that may be employed by the bank to settle any outstanding balance.
The debilitating impact of the coronavirus has resulted in clients/debtors defaulting on their monthly payments and in so doing expose the bank to an overwhelming risk.
Insurance companies have also had to contend with a significant increase in claims being submitted by their clients.
Regulators such as Namfisa (Namibia Financial Institutions Supervisory Authority) have been overwhelmed by complaints from consumers due to insurance companies rejecting claims that are valid according to the policyholders.
Our courts are inundated with litigation stemming from insurance claims.
Where a life insurance policy has been ceded to a banking institution, the appointment of a beneficiary will not be necessary because the policy proceeds will be used to settle the outstanding balance on the loan at the demise of the debtor.
If the balance was settled prior to the demise of the debtor, the cession will be released and a beneficiary should consequently be appointed for the remainder of the policy benefit or the beneficiary nomination may be omitted resulting in the policy proceeds being paid directly to the estate where it may be employed to cover future estate expenses.
Let›s assume that quite a few credit agreements have been revised by commercial banks to accommodate salary cuts or job losses. Repayment periods have also been extended or monthly instalments may have been decreased.
As far as insurance companies are concerned, are you still able to pay the monthly premium on a life insurance policy that has been ceded to a bank as collateral?
If you’re unable to pay the above premiums, kindly consult your financial advisor/broker to assist you in eliminating a few non-essential expenses.
Life insurance policies or rather the proceeds of a life insurance policy ensure the solvency (assets/income exceeding liabilities /expenses) of a deceased estate.
An insolvent estate (liabilities/expenses exceeding assets/income) will often result in the sale of immovable property (at less than market value) to cover estate expenses.
We urge you to do the following:
In light of our rapid economic decline, talk to an accredited financial advisor/broker about a comprehensive financial needs analysis.
If you’re the registered owner of an immovable property, please ensure that you have sufficient bond insurance which will not only cover the capital amount at your demise but the additional interest on the outstanding balance. The cover amount should in all probability be increased to cover a severely inflated interest component often imposed entirely at the discretion of a commercial bank and less transparent to a debtor.
Do not allow an insurance policy that has been ceded as collateral to lapse because of non-payment. The commercial bank’s cession or collateral department will definitely raise a red flag if this happens.
Talk to your insurer about the validity of a future claim or any act/omission or circumstance that may prevent the processing of a valid claim. Stress test that policy benefits!
Talk to your commercial bank about the validity and adequacy of an existing cession and how increasing exposure to an adverse economic climate may be constructively managed.
Have a plan B. This will often require sourcing additional financial means to settle any and all future liabilities, which would otherwise have been covered from the proceeds of a life insurance policy.
7. An immovable property may also be transferred to a potential heir/ transferee (son/daughter/ grandchild) while the registered owner is still alive resulting in a decreased estate value and consequently expense.
Apply for and obtain legal insurance. If your surviving family members or the executor of your estate are bent on dragging an insurance company to court for refusing to process a valid claim, they are going to need a lawyer and he/she will not assist them on a pro bono (no cost) basis.
Consult with and have a valid Last Will and Testament drafted by an experienced legal practitioner.
Carefully consider all the cost implications with a seasoned financial advisor/ broker as well as your legal practitioner before signing the above document. A will and estate plan is crucial to your financial well-being. and in conclusion. Think before you buy !
*Dieter Ian Maree is an admitted legal practitioner of the High Court of Namibia practising under the name and style of Maree & Associates.