Also, if you’re in a defined benefit scheme, the scheme must send you, every year, a summary funding statement. This gives you important details about the ability of the scheme to pay the benefits due under the scheme.

What you should Know on joining a particular Scheme

Your scheme or provider must give you basic information about the scheme when you join. If you’re automatically enrolled in your workplace pension scheme, you must be told about automatic enrollment; that you have been automatically enrolled and what this means to you; and about your right to opt-out.

If you do not qualify to be automatically enrolled, you must be told about the workplace pension scheme and your right to choose to join it. The information must be given to you before the end of the month in which you are automatically enrolled or have a right to join.

Basic details on workplace pension schemes

If you are automatically enrolled, you should be given the basic details of the scheme within one month of being automatically enrolled. If you’re choosing to join a pension scheme, you should be given the basic details within two months of joining the scheme. The type of information you must be given is:

1. What the scheme is called and who the trustees are
2. How you build up benefits and how you can transfer other pension contributions into the existing
3. The rate of employer and employee contributions and how you can pay more whether the pension scheme is registered with the Pensions Regulatory Authority
4. Whether dependents’ benefits are payable, and if so, the conditions for payment and how to get a transfer quote, a refund of what you’ve paid in or details of the benefits you have built up
5. How to complain about the scheme, including how to contact us, the Pensions Ombudsman or the Pensions Regulator about a complaint.
6. Also, if your workplace pension scheme is a defined contribution scheme, your scheme must tell you about your investment options, including investment charges. Your scheme or provider will probably give you a scheme particular containing this information.

If you have a stakeholder pension, your provider should send you an annual statement automatically within three months of the end of the scheme year.

The statement must contain, as a minimum:

1. the value of your pot on the day before the start of the statement year; the value of your pot on the last day of the statement year (or at the time when you left the scheme if you left during the year);
2. the amounts paid in by you;
3. the amounts paid in by your employer;
4. the amount of any tax relief paid into your pot;
5. any amounts deducted for charges; and
6. a statement giving a list of other information that you can request, such as the amount of investment gain or any amounts transferred in from another pot.

Retirement planning includes identifying sources of income, estimating expenses, implementing a savings program, and managing assets and risk. Future cash flows are estimated to determine if the retirement income goal will be achieved.

Retirement planning is ideally a life-long process. You can start at any time, but it works best if you factor it into your financial planning from day one of your first paycheck. That’s the best way to ensure a financially comfortable, secure, safe -and fun-retirement.

Retirement Planning Keys

1. Determine your desired retirement income in today’s present value
2. Estimate projected income that will be available to you in retirement
3. Decide when you want to retire
4. Estimate the number of years you will likely spend in retirement until say age 90
5. Take the FLF Africa Financial Wellness Barometer to determine how much you will need to fund your desired financially independent retirement
6. Start saving and investing every month toward this desired retirement goal immediately
7. Decide to monitor your investment yield as often as possible. And do well not to withdraw until you are ready to go on retirement

Stages of Retirement Planning

Below are some guidelines for successful retirement planning at different stages of your life.

Young Adulthood (ages 21–35)

Those embarking on adult life may not have a lot of money free to invest, but they do have time to let investments mature, which is a critical and valuable piece of retirement savings. This is because of the principle of compound interest. Compound interest allows interest to earn interest, and the more time you have, the more interest you will earn. Even if you can only put aside $50 a month, it will be worth three times more if you invest it at age 25 than if you wait to start investing at age 45, thanks to the joys of compounding. You might be able to invest more money in the future, but you’ll never be able to make up for the lost time.

Early Midlife (36–50)

Early midlife tends to bring a number of financial strains, including mortgages, student loans, insurance premiums, and credit card debt. However, it’s critical to continue saving at this stage of retirement planning. The combination of earning more money and the time you still have to invest and earn interest makes these years some of the best for aggressive savings.

Later Midlife (50–65)

As you age, your investment accounts should become more conservative. While time is running out to save for people at this stage of retirement planning, there are a few advantages. Higher wages and potentially having some of the aforementioned expenses (mortgages, student loans, credit card debt, etc.) paid off by this time can leave you with more disposable income to invest.

You should never pay a monthly maintenance fee for a checking account

The monthly maintenance fee can be surprisingly expensive, costing more than $10 per month. Most banks have multiple ways to avoid the fee. The most common is to have your salary deposited directly into your account each month. Another common option is to maintain a minimum balance. You can usually trigger the fee even if your account falls below the required balance for just a day. The difference in minimum deposit requirements can be dramatic.

Linking your credit card as overdraft protection can be costly

Many banks encourage you to link your credit card to your checking account for overdraft protection. Although this can be cheaper than being hit with a $35 overdraft fee, it can still be an expensive way to borrow money. First, your checking account will likely charge you an overdraft protection transfer fee, which is typical $10 – $12. Second, most linked credit cards treat the transaction as a cash advance. That means you will be charged a cash advance fee on the credit card, which is usually around 3%. In addition, interest will accrue immediately at the cash advance rate, which is normally above 20%.

Avoid savings accounts at bricks and mortar banks, unless you get excited by a less than 5% interest

We live in a world of extraordinarily low-interest rates. But the interest rates paid by traditional banks for savings accounts are shockingly low. The largest banks are paying 0.01% on savings accounts for entry-level accounts.

ATM fees are getting more expensive, and are completely avoidable

Bank ATM fees continue to increase. If you use an ATM of another bank, you will typically get hit with two fees. You will be charged by the bank that owns the ATM and by your own bank. Those charges can add up quickly.

Apps are replacing branches. You should consider the quality of an app when choosing a bank

Basic banking transactions are increasingly migrating to mobile phones. You can now deposit checks, transfer funds, pay bills, view statements, dispute transactions, and wire money using your mobile banking app. Given the importance of mobile banking apps, you should consider the commitment of the bank to mobile banking when making a decision on where to bank.

Important Must-Knows before you bank

Compare savings interest rates

In many cases, the interest rates for savings accounts paid by traditional banks are low. You may get a higher interest rate if you comparison shop and include online options. Online or internet banks provide you with the same level of FDIC protection, but because they don’t have the same overhead costs that brick-and-mortar banks do, they are more likely to require fewer fees and provide accounts with no minimum balances and higher interest rates. Learn more about internet banks.

Banks don’t use credit scores to open checking and savings accounts

Your credit ratings do not count as to whether or not you can open a current or savings account.

Brick and mortar branches aren’t as important as in the past

In an age where technology is ever-increasing, the most important question on banking is how your bank and not where you bank. One of your most critical considerations before choosing a bank is the quality of its online banking systems or the bank’s mobile app. Basic banking transactions are frequently handled with mobile devices, including the ability to deposit quickly(cash or cheque), transfer funds, pay bills, view statements, dispute transactions, and wire money using your mobile banking app. Given the amount of use and the importance of mobile banking apps, weigh the functionality of the bank to mobile banking when making a decision on where you plan to bank.

Watch out for ATM fees

Automatic Teller Machine (ATM) makes it easy to withdraw cash from your account when you need it. As long as you use an ATM within your bank’s network, the fees to use and ATM are typically included with your account. But ATM fees can take a big bite out of your budget if you regularly withdraw cash at an ATM that isn’t part of your bank’s network. Banks often charge $2-3 to use a different bank’s ATM, then there is usually a separate transaction fee. Beware of those fees that can add up over the course of a year.

Online banking and bill payment are important

For many people, taking care of electronic payments through online banking and bill payment is the easiest way to manage monthly expenses. Electronic bill paying can help you not only with managing your bills, but you can also combine your bill payments with your budget and financial planning. Many banks include the ability to pay bills directly from your account with your checking account services.

Different kinds of banks

Credit Unions

Credit Unions are banks that run as a non-profit organization. They typically are open only to people who are members of the Union (usually, employees of a particular company, members of a church, or residents of a local community). These days credit unions are open to more than just limited applicants. A credit union typically offers better interest rates than banks and given their small, local nature, it’s possible to form a relationship over time with your credit union. The downside to credit unions is typically convenience. They will have limited locations and limited banking hours. So while credit unions offer a lot of advantages over banks, your money will be less accessible.

Rural Banks

Rural Banks are banks that are run in remote communities to support and assist the rural community with financial inclusion. They mobilize deposits and extend credit to farmers, cottage industrialists, and other rural-based economic operators in the defined areas of operation. Until recently, Rural banks had no branches beyond the areas of operation. They worked through a network of agencies and mobilization centers. The establishment of a rural bank is usually an initiation of the people in the rural community where the bank is to be located.

Savings & Loans (S&Ls)

S&Ls are for moderate-income people to grow their savings and borrow from the same. They serve people/small enterprises who typically are not able to get service from traditional high street banks.

Commercial Banks

Commercial Banks serve businesses, giving corporations a place to deposit funds or obtain business loans & lines of credit.

Types of Bank accounts

Savings Accounts

keep your money safe and earn a small amount of interest. Usually below inflation. The funds are available to be withdrawn whenever you need them.

Current Accounts

Let you transfer funds to others by writing checks or using a debit card linked to the account. Bank accounts typically carry a small monthly fee, but that may be waived under the right conditions. In some very rare cases, a checking account might actually earn interest.

Money Market Accounts

Usually require a minimum balance to stay open. The accounts earn a much her interest rate than traditional savings, but the money is less accessible, and you have to be wary of dropping below the minimum balance and triggering penalty fees.

Certificates of Deposit

Certificates of Deposits require you to keep your money untouched for a set period of time. The longer you agree to leave the money alone, the more interest it will earn. For example, a bank might offer traditional savings at 4% or less. If you agree to leave your money in a CD for one year, that deposit might earn 8% or 9%. If you buy a 3-year CD, it might earn 16%. And if you commit to a 5-year CD, you could get an interest rate of 25% (these are just examples—real rates will vary).

An event covered by insurance is referred to as an insurance event. The person to whom such an event occurs or may occur is called the person insured. When an insurance event occurs (you get ill, suffer an accident, reach a certain age), the insurer will pay you a certain amount of money referred to as an insurance benefit/claim paid. The insurance benefit/claim paid will help you or your family to overcome the financial difficulties or increased costs that may arise from an insurance event. This means that by arranging insurance you obtain insurance cover against a certain risk.

The Insurance Industry

Insurance companies largely fall into three categories:
– Life Insurance
– Non-Life Insurance
– Composite Insurance (a combination of Life and Non-Life insurance)

Four Types of Insurance Everyone Needs

Life Insurance

Life insurance is about your life. It is made up of two basic types; traditional whole life and term life. Simply explained, whole life can be used as an income tool as well as an insurance instrument. As long as you continue to pay the monthly premiums, whole life covers you until you die. Term life, on the other hand, is a policy that covers you for a set amount of time. There are other considerable differences between the two types of insurance, so you may want to seek the advice of a financial expert before you decide which is best for you. Factors to consider include your age, occupation, and the number of dependent children.

The greatest benefits of life insurance include the ability to cover your funeral expenses and provide for those you leave behind. This is especially important if you have a family that is dependent on your salary to pay the bills. Industry experts suggest a life insurance policy that covers 10 times your yearly income. But that’s a number not everyone can afford. When estimating the amount of life insurance coverage you need, remember to factor in not only funeral expenses but also daily living expenses. These may include mortgage payments, outstanding loans, credit card debt, taxes, child care, and future college costs.

Health Insurance

Statistically, every family is just one serious illness away from bankruptcy. The American Journal of Public Health in their Journal Survey of 900 Americans in 2019 who filed for personal bankruptcy between 2013 and 2016; more than two in three bankruptcies were caused by medical problems—from bills, income loss due to illness, or both. These numbers which are worst in developing economies should incentivize you to consider health insurance or review and possibly increase your current coverage if you do not have presently. But with rising co-payments, increased deductibles, and dropped coverages, health insurance has become a luxury fewer and fewer people can afford. When you consider that the national average cost for one day in the hospital was $2,517 in 2018, even a minimal policy is better than none.

The best and least expensive option may be participating in your employer’s insurance program, but many smaller businesses do not offer this benefit. The average annual premium cost to the employee in an employer-sponsored health care program was $7,188 for single coverage and $20,576 for a family plan in 2019, according to research published by the Kaiser Family Foundation. If you don’t have health insurance through an employer, check with trade organizations or associations about possible group health coverage. If that’s not an option, you’ll need to buy private health insurance.

Long-Term Disability Coverage

Long-term disability insurance is the one type of insurance most of us think we will never need. Yet, according to statistics from the Social Security Administration, three in 10 workers entering the workforce will become disabled and will be unable to work before they reach the age of retirement.
Often, even those workers who have great health insurance, a nice nest egg, and a good life insurance policy don’t prepare for the day when they might not be able to work for weeks, months, or ever again. While health insurance pays for hospitalization and medical bills, you’re still left with those daily expenses that your paycheck generally covers.

Auto Insurance

On average, there are six million car accidents in the U.S. every year, according to the National Safety Council. An estimated 38,800 people died in car crashes in 2019 alone. The number one cause of death for American’s between the ages of five and 34 was auto accidents, according to the Fatality Analysis Reporting System (FARS) in 2009 data (the last available data). Over two million drivers and passengers received treatment in emergency rooms in 2009, and the costs of those accidents, including deaths and disabling injuries, were around $70 billion.

Globally, if you drive without auto insurance and have an accident, fines will probably be the least of your financial burden. If you, a passenger, or the other driver is injured in the accident, auto insurance will cover the expenses and help guard you against any litigation that might result from the accident. Auto insurance also protects your vehicle against theft, vandalism, or a natural disaster, such as a hurricane or other weather-related incidents. Again, as with all insurance, your individual circumstances will determine the cost of auto insurance. To make sure you get the right insurance for you, compare several rate quotes and the coverage provided, and check periodically to see if you qualify for lower rates based on your age, driving record, or the area where you live.

The Bottom Line

Most experts agree that life, health, long-term disability, and auto insurance are the four types of insurance you must have. Always check with your employer first for available coverage. If your employer doesn’t offer the type of insurance you want, obtain quotes from several insurance providers. Those who offer coverage in multiple areas may provide some discounts if you purchase more than one type of coverage. While insurance is expensive, not having it could be far more costly.

Policy

A legal contract between you and the insurer. It details what risks are covered, under what circumstances the insurer will make a payment to you, how much money and what type of benefit you will receive if you make a claim.

Policyholder

The insured or the person covered under the policy.

Coverage

The amount of protection you have bought. It is also the maximum amount the insurance company will pay you if you make a claim for loss or event covered by your policy.

Benefit

The amount the insurer will pay you if the insurer accepts your claim.

Premium

The amount you pay for the insurance.

Rider/Endorsement

A specific change to a basic policy, intended for somewhat common deviations or to customize a policy to a particular insured

Surcharge

Extra cost added to the basic premium, usually due to at-fault claims or legal action (a traffic violation often results in a surcharge, which can be added in the middle of a policy period)

Actuary

A person who determines rates and settlements for an insurance company based on statistics and mathematical models

Adjustor

A person who assesses the extent of damage in an incident, which is used as the basis for the settlement offer

Cash value

This is the amount the insurer pays to the policyholder when a life insurance policy is canceled. It can also be an amount added to the death benefit and can be paid upon the insured’s death. This term is used with permanent life insurance policies.

Death benefit

The amount the insurer will pay the beneficiary or beneficiaries upon the insured’s death.

Claim

This is the official notice to your insurer to be paid for a loss or event covered by your insurance policy.

Beneficiary

This is the person or entity the insured names or assigns to receive the proceeds of the policy. A beneficiary can be revocable (can be changed at any time without informing the beneficiary) or irrevocable (can’t be changed without the beneficiary’s written permission).

Deductible

The amount you agree to pay before the insurer pays the rest.

Exclusions

Things that are not covered by your policy. For example, some health insurance policies may exclude certain medical conditions you had before you applied for insurance, or a travel insurance policy may exclude claims if you travel to a high-risk country. This is why it is important to read your policy thoroughly to check what it covers and what it doesn’t cover so that there will be no surprises when the time to claim comes.

Risk

Probability or likelihood that an insured event, such as loss, injury, or death, will happen while the policy is in effect.

Rider

It is a clause or term added to your insurance policy to provide protection. This has an additional cost because it covers risks not covered in the basic policy.

Term

The time period you are covered by your policy.

Lifetime Limit

Upper limit the insurer is required to pay over the policy lifetime

Annual Limit

Similar to lifetime, except per year

Liability Limit

Upper limit per claim

Annuity

Yearly payment (usually a settlement) which spreads a full benefit out over time

Insurance is intended to mitigate financial risks. However, insurance is not always necessary. There are insurance policies for so many possible problems and many of them simply are not relevant to all people or entities.

Some of the most important insurances regard life. Health and life insurance are practical and are much cheaper to purchase when the insured is far from needing them. Insurance is a business of probabilities, and a young, healthy, boring individual is much less likely to make a claim on health or life insurance in the near future. Conversely, a customer who is 95, smoked and drank all his/her life, and still enjoys skydiving once a week is much more likely to claim health or life insurance benefits. Timing is essential when purchasing insurance.

Other insurances, like auto, are only required when one owns or uses a car. If you plan to live in a major city with excellent public transit, your auto insurance is irrelevant (rentals usually have their own insurance attached). Purchase only what you expect to need, and there is little reason to purchase a plan that extends beyond that.

Entering into a policy early will affect lower premiums, but one must be careful not to discount the time value of money or possible life changes. Furthermore, applying earlier is better. Waiting can result in delays or denial, especially if a condition develops too much.

Remember, insurance is meant to mitigate future financial risks, and thereby it may ensure other important benefits, such as preventative medical care or income to purchase food after a major accident at work. Plenty of material is available online, and it may even prove overwhelming. Hopefully, we helped simplify some things about insurance for you. If you are unsure about what insurance is right for you, there are professional insurance brokers who can offer some assistance in choosing the most appropriate plan for your needs.