Most South Africans have some form of funeral cover.

For many families it serves a valuable purpose.  When a loved one passes away, funeral cover can provide immediate liquidity at exactly the time it is needed most.  Funeral arrangements need to be made, accounts need to be settled and life doesn’t pause while financial institutions process the claims.

For that reason alone, funeral cover remains an important and appropriate solution for many people.

Yet one of the things I enjoy most about financial planning is that there is rarely only one way to solve a problem.

Take my own situation as an example.

I’m married, but we don’t have children.  Like most people, I have life cover in place.  I have retirement savings that would ultimately accrue to my wife, and I have discretionary investments that form part of my overall wealth.

The challenge is that while all of these assets will eventually provide financial security, none of them necessarily provides liquidity and immediate access to cash.

Life policies generally pay relatively quickly, but not instantly.  Retirement savings take longer and may take up to 12 months to pay out.  Other assets that form part of a deceased estate can take considerably longer still.

The last thing I want is for my wife to have to worry about cash flow while waiting for various processes to run their course.

Equally, I’d rather not leave her with the burden of funding my farewell celebrations.

You see, I’ve spent most of my adult life in two places: Johannesburg and Grabouw.

Over the years I’ve hopefully accumulated enough friends in both towns that a few people might be prepared to raise a glass in my memory.  In Johannesburg, Pirates Sports Club would be the obvious venue.  In the Cape, the Elgin Grabouw Country Club seems the logical choice.

My idea of funeral planning therefore includes a rather unusual objective.

I want to buy everyone a final round.

Rather than purchasing traditional funeral cover to meet this objective, I could establish two separate endowment policies.  Each sports club would be nominated as beneficiary of its respective policy.  The objective would be simple: accumulate enough capital to fund a decent gathering when the day eventually arrives.

Initially I would contribute monthly premiums.  Once the capital reached a sufficient level, I could potentially stop contributing altogether.  Assuming the investments remain exposed to an appropriate long-term asset mix, the power of compounding should over time allow the capital to continue growing.

Admittedly there is one complication.

The cost of beer tends to rise faster than ordinary inflation.

Fortunately, equity markets have historically shown a reasonable ability to deal with inflationary challenges and produce excess returns over long periods of time.

And if investment returns happen to exceed “booze inflation”, all the better.  Nobody wants a farewell where the bar tab exceeds the budget.

Of course, good financial planning requires us to consider the technical details as well.

The proceeds of these endowment policies would still be considered for Estate Duty purposes.  However, with the remainder of my assets passing to my wife, the Section 4q spouse abatement should ensure that those endowment policies do not attract Estate Duty.  As long as the value of the endowment policies remains below the applicable Estate Duty threshold, the structure should remain efficient from an estate planning perspective.

But what about my wife?

Buying drinks for friends is one thing.  Looking after your spouse is quite another.

For me, one of the more practical solutions is to build a discretionary investment in her own name during my lifetime.  I would fund it through regular contributions.

Ordinarily, contributing to an investment owned by somebody else may have donations tax implications.  Fortunately, donations between spouses are exempt from donations tax.

The investment would belong to her and remain fully accessible to her.

She would be responsible for any tax arising from income or capital growth generated within the investment, but this can often be managed efficiently through appropriate investment selection and by making use of available tax allowances.

Most importantly, the capital would be immediately accessible (within three working days).

Should I pass away, she would have funds available to pay for funeral-related expenses, household costs and any other short-term financial needs while waiting for insurance proceeds and estate assets to be finalised.

That liquidity may ultimately be worth far more than the value of any funeral policy.

Now, before anyone rushes off to cancel their funeral cover, let me be clear.  This article is not an argument for or against funeral cover.

For many South Africans, funeral cover remains the correct solution.  If death tomorrow would create an immediate financial burden, insurance is often the most efficient and appropriate answer.

My point is simply that financial planning is personal, your needs are determined by personal objectives, needs and financial situation.

The best outcome is not achieved by asking, “What product should I buy?“

It is achieved by asking, “What problem am I trying to solve?“

In my case, the problem isn’t simply funding a funeral.  It is making sure my wife has immediate access to cash, ensuring my estate runs efficiently and, hopefully, giving friends in two different towns one final excuse to tell stories at my expense.

That solution may not be appropriate for everyone.

But that’s exactly the point.

Good financial planning isn’t about finding a standard answer.  It’s about creating the right answer for your circumstances.

And if my plan works as intended, when the day eventually comes, the first round will already be paid for.

After all, one final round on me seems only fair.