When it comes to debt and financing, most people don’t have a clue and make irresponsible decisions. They max out their credit cards, spend way too much money and buy things that are unnecessary or things that put them under strain. In an effort to stretch their loan capacity even further, they go and cede their life insurance policies.

This is a strategy that many South Africans opt for, especially when they want to secure that home loan. However, before you even think about ceding your life policy, here are five things to consider.

Cover amount
Let’s face it, life insurance isn’t the most expensive monthly expense that you have and when you cede your policy, you reduce the payout. So, if you have no other choice but to cede your policy, you need to increase your cover.

It won’t set you back or cost you an arm or a leg, but it will ensure that your family is covered in case something should happen to you. On the other hand, you can also take out a second life policy or mortgage protection plan. Then you don’t have to mess with your existing policy.

Inform you beneficiaries
It is also a good idea to keep your beneficiaries in the loop and make sure that they don’t get a nasty surprise in case something happens to you. Many families are left with unsurmountable heaps of debt when the breadwinner passes on.

When your spouse is involved in the decision to cede, he or she is aware of the risks and can make plans accordingly. They will also be aware of how the entire process works and won’t have to deal with unnecessary complications in the event that they have to claim.

Joint home loans
The average joint income for a South African family is not the highest in the world and in most cases, a home loan can only be taken out if it is a joint venture. When a joint home loan is then taken out, the banks will require both parties to take out life cover.

In this event, you could opt for a higher life cover to make sure that the bond is covered and then some. Marriage is a very fragile institution nowadays and leaving your partner with excess debt can lead to resentment and soil your memory.

Settled home loans
Life is not fair and if anyone told you that it is, they lied to you. When it comes to money, everyone is out to save a buck and don’t care if you lose. When you settle your home loan, it means that the ceding of the life insurance policy is no longer needed.

It was only ever meant to be extra insurance in case you didn’t make it. However, when you settle your bond, no one is going to do anything about the cede if you don’t tell them. Therefore, you need to inform all the relevant parties or you will end up losing all the way.

Terms and conditions
If there is something that we all hate to read through it is the terms and conditions of policies. We want to believe that everything will work out and that the lenders will be reasonable and pay the money that is due to you. However, reading the fine print will save you a lot of heartache and disappointment.

The terms and conditions are often confusing for the layman and it is, therefore, important to get advice and ask for clarity beforehand. It might delay the process by a day or two, but at least you will know what you are getting yourself into.

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