After attending the funeral of a dear client at only 44 yrs of age today, it has really brought home to me the importance of insurance and protecting our most important asset, ourselves.
Sadly most of us take on debt for many different reasons but the most common being the family home. Debt is an essential financial tool that allows us to leverage our personal assets to invest in growth and income producing assets such as commercial and residential property.
For the younger generation most property is purchased by way of a combination of debt and equity. As we get older and pay off mortgages then eventually homes are bought and sold without a mortgage.
In today’s’ financial climate debt is typically financed by a mortgage to a bank. The equity (or deposit as it is commonly referred to) is sometimes funded by cash or savings. Occasionally I have clients who have the fortune of being able to borrow any shortfall they need from family.
Invariably lenders these will be getting you to sign a guarantee to protect them if you defaulted on the loan.
So why does this pose a potential risk to the you as a borrower?
In it’s simplest form A Personal Guarantee is an obligation for the borrower to pay an obligation to the lender, on demand.
Personal Guarantees expose an individual’s personal assets in the event of unforeseen circumstances.
Whist we cannot protect against economic downturn causing vacant tenancies, we can protect against the risk of a borrower being unable to meet an obligation due to Death, Serious Illness or the inability to fund a shortfall from rental income due to Disability.
Many clients will say to me that they aren’t concerned because they don’t have children, and of course, nor do I so I can relate to that. This isn’t my main concern.
My main concern is: What if you have a serious illness that is not covered by ACC and you live!
If I am not in a position to work due to poor health I sure need to be doing something with my time, and I certainly want to maintain as much of a reasonable lifestyle as I possible can.
An example of this is when I was away overseas in Thailand, one of the guests at the Hotel was in a wheel chair, severely handicapped, he had a full time nurse with him. He is still able to travel, clearly had his wits about him, he just physical couldn’t take care of himself.
Borrowers should look to cover their debt, particularly if it is subject to Personal Guarantee, in tandem with a balances risk-management plan based on sound insurance advice.
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