Ex­am­ples of what you get

Weekend Argus (Saturday Edition) - - PERSONALFINANCE -

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.

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