I have a life cover policy at Sanlam and I would like to convert it to an investment or retirement fund to boost my retirement. Does it have any investment value?
SANLAM’S PRODUCT ACTUARY, PETRIE MARX, REPLIES:
Previous-generation “universal life” products had an investment element integrated with life cover.
But the sale of those products stopped, basically, around the turn of the century.
Although universal policies had some advantages of their own, notably the possibility of a surrender value and upside investment potential, they suffered from the disadvantages, such as a lack of transparency, volatile investment markets affecting cover, and the cost of pure risk cover being more expensive than it otherwise could have been.
As a result, new-generation products were designed around a general customer and adviser preference of “buy the most cost-effective cover and invest the rest”.
The result was both risk and savings products that were more transparent, more easily understood by customers and that addressed specific financial needs.
Now, in response to the specific question, both life cover and retirement needs are the pillars of any financial plan, but I would encourage customers not to look at it completely separately.
It should not be an “either-or” as far as priorities are concerned. Instead, no retirement plan can be considered complete without sufficient life, disability and income protection cover also being put in place.
Although there are retirement annuities that include an element of life cover, these products are certainly no longer the norm.
It may have been seen as a tax advantage to effectively also be able to deduct risk cover contributions for personal income tax purposes, but then payment of the cover also had to be used to purchase an income.
Customers would generally be better served by using their maximum allowance to actually save towards retirement.
In addition, risk cover contributions can be paid from “after-tax” money, but with the proceeds being free of income tax in the hands of the claimant.
Also note that there are some “retirement boosters” or cash-back benefits available under some modern risk cover products, but these come in the form of specific benefits that must be selected upfront, and for which you pay a specific premium to contribute towards such a privilege.
It is not as simple as simply electing to convert some of your day-to-day cover to a retirement benefit at any point in time.
There will be a cost impact from day one, when cover is structured in that way.