The best 100 money tips ever! 81 - 100

This is the final part of five posts on The best 100 money tips ever. Click below to read the other posts.
1- 20
21 - 40
41 - 60
61 - 80
81 - 100

81. If you have dependants, life assurance is more important than investments. Investments take longer to accumulate to the level that may be required by your dependants, whereas life assurance benefits can immediately meet those needs if required.

82. As a general rule, you should keep your risk life assurance against death and disability separate from your investments, particularly if the risk assurance is for a long period. The main reason for this is that, if you land up in financial difficulties, you do not want to lose the risk cover because you have had to stop paying the investment portion. This strategy also gives you more flexibility with your investments.

83. Life assurance against dying or being disabled may only be required for short periods. For example, you may need cover to provide for the education of children for 10 years or until you have built up sufficient savings. You do not need a 20-year contract.

84. Consider joint life assurance if you have a partner. It is often cheaper. It comes with the options of paying when the first of the two dies, or when the last partner dies, or fully on the death of each partner. Obviously, the premium will be determined by the option you choose.

85. Be very wary of credit life assurance. Although it can be essential to ensure debts are paid when you die, it is also open to abuse. Often, when you finance, for example, a motor vehicle, you will be sold life assurance to cover the debt. But many sales people sell you assurance that runs for a longer term than the debt and credit life assurance has an investment element included. Commission, not your financial well-being, motivates sales people.

86. You need to do some estate planning, particularly if you are wealthy. Any amount above R1.5 million that is not left to your spouse is subject to estate duty at a rate of 20 percent, and any capital gain that is not exempt is subject to capital gains tax, as death is considered a capital gains event. (The first R50 000 is exempt when you die.) If you do not have readily available cash to cover these taxes, you need life assurance to ensure there will be no need for a fire sale of other assets.

87. Apart from when you have a home loan, you cannot be forced to take out short-term insurance with any particular company when you receive a loan on a fixed or moveable asset. You can be forced to take out insurance, but you can and should shop around for the cheapest premium.

88. You can reduce the amount you pay in short-term insurance by increasing the excess (the first portion of any claim, which you pay). A higher excess will mean lower premiums. However, you should keep the excess within affordable limits. Better still, build up savings equivalent to any excess you may be required to pay and earn interest on them.

89. When you change address, check whether your short-term insurance premiums could be reduced. Where you live can effect the level of your short-term insurance premiums.

90. Most short-term insurance policies have a number of exclusions. For example, on motor vehicle insurance, you are required to maintain the vehicle properly. For example, if your tyres are smooth, your claim will be rejected no matter what the cause of the accident. Be aware of the exclusions, so that you don’t have a claim refused unexpectedly.

91. Check the value of your motor vehicle. One racket perpetrated by insurance companies is to increase premiums annually, when they should be decreased to take account of the declining value of your vehicle. When you claim, you will only be paid the actual value, not the insured value.

92. When making a short-term insurance claim, first find out what effect the claim will have on your no- claim bonus. If the claim (after payment of the excess) is relatively small, it may be better not to claim and keep your no-claim bonus intact. A no-claim bonus can equal as much as a 60 percent reduction on premiums after five years.

93. Use the R10 000 exemption from capital gains tax. Every year you are entitled to claim an exemption of R10 000 against any capital gain. Say, for example, you want to cash in an investment with a capital gain of R20 000 in November. Instead, cash in half in November and half after March 1, the start of the new tax year.

94. Interest-bearing investments become far more attractive when you don’t have to pay tax. For the current tax year, the first R10 000 in interest income is tax exempt if you are under the age of 65, and R15 000 if you are over the age of 65.

95. If you are investing for an income and have exceeded your tax-free interest exemption, consider cashing in investment capital that you can offset against your R10 000 capital gains tax exemption.

96. Never make a tax decision first when investing. Consider the tax implication last. Many people make the tax decision first and reject what could have been a good investment.

97. If your spouse is on a lower marginal income tax rate than you, it is best to transfer interest-earning assets to him/her. Also, remember that each spouse is entitled to the tax-free amount of R10 000 under the age of 65 and R15 000 over the age of 65.

98. To qualify for the R1 million capital gains tax exemption on your primary residence, you actually have to live in that property. If you rent out the property for even part of the time, you will have to deduct the period proportionally from the exemption.

99. The benefits of a life assurance policy are not subject to income tax or capital gains tax in your hands. Tax is paid on your behalf by the life assurance company at rates of 30 percent on interest, net rental and foreign dividends, and an effective 7.5 percent on capital gains. So, if your marginal tax rate is greater than 30 percent, you are receiving a tax advantage by investing in a life assurance policy as opposed to a unit trust investment with similar underlying investments.

100. Assets can be transferred between spouses without attracting donations tax. So it can pay to transfer assets on which capital gains tax may become due, to take advantage of lower marginal tax rates and the R10 000 exemption. Remember, 25 percent of a capital gain (which is not exempt) is included as income for tax purposes. So, the lower your marginal rate, the lower your capital gains tax will be.

This article first appeared in the 4th quarter 2003 edition (volume 17) of Personal Finance magazine.

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