MONEY CLINIC: Should I rather stop paying my life policy or my bond?

QUESTION:  My husband and I are in the mid 60’s. He has a business which is 30 years old. Over the years we have built up a healthy cash flow, bought property and invested in various retirement annuities.

Then our economy took a turn for the worse and we gradually had to start selling our assets, stop paying towards our retirement fund and pump all available cash back into the business. Once we depleted all our savings, we were forced to take out loans to survive and pay suppliers.

Our situation has become dire now and we might lose our house, with the bailiff knocking on our door.

Although we are still running our business, which does bring in some income, it is not enough to cover all our needs. I work in the UK to help towards paying for the bare necessities. This is not a healthy situation and is taking a toll on my health, physically and emotionally.

My husband has a life policy through which I pay every month. I pay R7 600 per month. We are unable to honour installments on the R800 000 bond on our house and stand a chance of losing our only asset. 

My question is: Do I stop paying for my husbands life policy and use that money to pay for the house?  His life policy will be the only source of retirement income for me should he pass away. Should I stop working in the UK, I will not be able to pay for our life policy.

I look forward to some good advice.

ANSWER: Clive Atterbury, financial planner at Atterbury Financial Services, says he would propose that the couple sell the house.

“The bond is R800 000 and the monthly interest and capital repayment costs on that will probably be between R7 000 and R8 000 per month. I assume that the house will be worth a lot more than the outstanding bond loan. With the surplus they can hopefully pay back their other debt.

“Perhaps the income from their business will be sufficient if they don’t have to worry about the bond and other debt costs any more. They can then rent a small and cheaper place; or if the funds from the sale of their house is enough, perhaps buy a small house or flat.”

High premiums 

Atterbury also regards an amount of R7 600 per month for the policy as quite a high premium. “I am not quite sure what the cover on that is, but would recommend that they look at lowering the cover and with that the premium.

“It is no use to pay extravagently for a policy which would one day provide you with money, but are now forced to borrow money or put stress on your health to keep up the premium payments. Her husband's health would also be a factor in determining how important it is to carry on with the policy and find the money regardless of other stress factors.”

Atterbury says their circumstances do not look too rosy and it is difficult to give meaningful solutions in the absence of more detail on how dire their position is. For example, what is the state and future prospects of the business? Do they have children who could possibly take it over or support them?

It might be advisable to consider selling the business and investing the proceeds for a retirement income.

But the first priority for people in their 60s whose income sources have come under pressure should be to get rid of costly debt.

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