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Parental Guarantee Strategy

Parental Guarantee Strategy

A step-by-step guide for Parents who are acting as Guarantors

With today’s property prices, first home ownership is becoming harder and harder to achieve.

Too often, we’re finding that parents want to help their children achieve their home ownership dreams, but are worried about how it may affect them financially. The risks appear to outweigh the benefits and parents are left in a do-or-die situation where they feel responsible for helping their children financially.

The questions and concerns surrounding the possibility of future divorce, job loss or injury cloud the minds of potential guarantors, leaving them in a vulnerable position when signing the bank papers.

‘What if the borrower loses their job?’ ‘What if they can’t make the minimum loan repayments?’What happens then?’

‘Where does that leave us?’

The theory dictates that this situation leads to the Guarantor having to find the money to pay for the amount in arrears, before their security property is sold to repay the debt. Often, this also means that the financial future of the Guarantor is uncertain, as they are faced with having to delay their retirement, while dealing with undue financial hardship… not to mention the overall tension within the family.

It’s a devastating situation that leaves all parties out of pocket, and is something that can be easily avoided. Here’s how:

Cash flow

A simple, no-frills income protection policy can help to reduce risk.  If a child can work and, adequately repay the loan, there is every opportunity to make repayments and continue to do so should any unforeseen circumstances occur.

Recently, we had a case where parents who were acting as their son’s Guarantors paid for his $500 per-year income protection to ensure the mortgage was looked after until he had enough equity to refinance them out. It was a great back up plan that helped to minimise risk.


Actual Debt

If death was to occur, a life insurance policy on the child that is owned by the parents can help extinguish the child’s debt. This includes debt on the family home, and avoids any ‘son or daughter in law’ issues that may arise from such circumstances.

Parental Guarantee Strategy; they’re a great idea but, like most things in life an exit plan is needed.

To find out more, contact Partners in Planning. We are expert financial advisor in Melbourne

*Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information.

The Four Most Common Mistakes when Buying Life Insurance

The Four Most Common Mistakes when Buying Life Insurance

Buying Life Insurance is no easy task. It raises a lot of uncertain questions that leave us wondering what we need to do to make it easier for our loved ones should anything unexpected occur.

Here are the four most common mistakes that people make when buying life insurance;

1. Chasing the best price, and not the best cover

Let’s face the facts; we buy life insurance to have some sort of peace of mind if something major was to happen to us.

In saying this, we’re always reluctant to pay too much for cover. Cheaper policies (aka too good to be true) can be riddled with potential issues, so have a good read of the fine print and look into the providers claims and dispute handling history, and MOST importantly, above all else, review the listed policy exclusions.

2. ‘It’s ok, my superfund has Life Insurance

I have heard it one too many times. People often rely on the Life Insurance cover provided by their individual superfund.

Most super funds provide a default level of cover but, this is often well below the level most people need. Have a look at your latest super statement and see if the level of cover will even cover half your mortgage. Chances are, it won’t.

Did you know some policies are canceled automatically when you change jobs or stop receiving super money from your boss? It’s important to know and understand all the finer details when it comes to life insurance and super. Do your research; it’s worth the extra time.

3. ‘I don’t need advice, the guy on TV said its easy

Buying a Life Insurance policy is as easy as buying chocolate. Nowadays, it’s all a matter of picking up the phone or clicking a button online, and your Life Insurance Policy is sorted. You can walk into Coles and buy toilet paper and life insurance, all in the same aisle. It’s accessible. However, accessibility can be dangerous. Like I always say if it’s too good to be true, it is. Life insurance that is quick and easy to get may be declined at claim time for reasons such as non-disclosure, exclusions or hidden clauses.

Sitting down with a qualified and independent financial planner means you can benefit from advice on a multitude of policies that can be tailored to your needs. There’s no point in taking short cuts when it outrageously increases the risk.

4. Life changes, so should your insurance

Make the conscious effort to review your cover annually, and adjust accordingly. You may need to make some changes if;

·         You’ve recently been married or divorced (hopefully not within the same year!)

·         Have children on the way, or children who have left the nest.

·         Have an increase in income, more debt or are paying off a mortgage.

All these are circumstances shape the level of cover that you have, and naturally change over time.

We never buy life insurance for ourselves. It’s a small investment that we make to ensure that we don’t leave our families high and dry in the event of our death.

Spending 20 minutes to consider your life insurance choices now, will avoid any confusion later on. In my opinion, it’s the greatest gift you can give.

Find our more about the Life Insurance policy that is right for you by contacting Partners In Planning.

Finding the Perfect Financial Planner

Finding the Perfect Financial Planner

With a Royal Commission into the finance industry just around the corner, it’s important now, more than ever, to obtain accurate financial advice. We’ve created a list of go-to questions to ask before partnering with a financial planner.

Traditionally, the local Bank Manager was seen as the oracle of all things financial. Our parents would look to the Bank Manager to obtain advice and guidance on all things money. Oh, how the world has changed.

Now, banks employ teams of Financial Planners to give advice and indirectly sell products that, in many cases, the banks own themselves.

The big question is; how can you be sure you’re getting the best advice, without being sold an in-house product that may not meet your needs? How do you decipher through all the financial jargon, and reach a point where you’re satisfied with the information you have, and the product that you have received?

It’s true, having the right financial planner can make a world of difference. Research by the Financial Services Council has shown that people who received financial advice were almost $100,000 better off in retirement. However, how do you know which financial planners are putting your best interests before theirs?

To get you closer to your financial goals, here is a list of questions to ask before you decide to partner with a financial planner;

1.      Who owns/controls your license to give financial advice?
         It’s a sad fact 80%* of financial planners are owned/controlled by the banks.

2.      What are your qualifications?|
          It’s a worrying fact only 52% of advisors have a tertiary degree or higher.

3.      How many years experience do you have?
         This is important. They may have the knowledge, but do they have the experience?

4.      What are your fees? And how do you charge?
         If the fees outweigh the benefits, what’s the point?

5.      Does the planner have a conflict of interest with any in-house products?
         If they manufacture the products, how do they have a clear view of what product is best suited to your needs and requirements?

Asking these questions upfront at your first financial planning meeting is a responsible measure to take to help avoid any unpleasant surprises down the road.

Be sure to chat to Partners in Planning about all of your Financial Planning needs. Financial Planners Melbourne.