Examples of what you get
A 40-year-old non-smoking man whose child is one year old wants to save R500 a month until his child is 13.
If the man takes out death and disability cover, and assuming he is healthy and undergoes medical underwriting, Old Mutual says R73 of the R500 will go to risk life cover, while Sanlam says it will deduct R28.45. Liberty says the risk cover will cost about R90. If the policyholder adds a disability and retrenchment waiver, it will cost a further R45, Liberty says.
Sanlam says that if the policyholder wants an investment performance guarantee, he will pay between 0.5 and 1.1 percent of the annual value of the policy.
Liberty says although the cost of the guarantee depends on the specific portfolio selected, it will range from 0.75 percent to 1.8 percent a year.
Sanlam says assuming the premiums increase in line with the consumer price index (CPI) – that is, by six percent – and the policy earns a return of CPI plus two percentage points after costs, the policy value will be R158 292 when the child turns 13.
Old Mutual says it cannot provide projections on policy values, because these depend on the annual premium increases, the underlying funds and the charges.
Liberty says assuming the man invests R410 a month, with an escalation of 10 percent a year, and the policy value grows by 10 percent a year, the policy will be worth about R177 000 when the child turns 13.
It is important to note that if inflation is six percent a year, in 12 years, the R177 000 will be the equivalent of R88 000 today.
Liberty also says to achieve a 10-percent return you have to invest in a well-diversified balanced strategy. The asset allocation should be: equity, 55 percent; bonds, 10 percent; property, five percent; cash, five percent; offshore, 20 percent; and alternative investments, five percent.