I came across a 76 year old lady this morning who was sold a 10 year endowment at the age of 71 (through Old Mutual Horizons) for R10000 per month (yes, ten thousand rand!). 5 years later her situation has changed, she cant afford the premium anymore and needs to make a change…surprise, surprise, she is going to receive huge penalties for doing this.
This is just wrong and I dont care how anyone might try to justify this, there is no reason that this should have happened and the company should never have accepted a 10 year term when a 5 year term would have achieved the same goal.
There is, unfortunately, only 1 reason that a 10 year term was taken – fees and commission. Under the “new” commission regulations (which are the only ones I can get to generate a quote) a 5 year term would earn the broker R28000 in commission and a 10 year term would generate R52800 in commission. The company admin fees would not be that different from these figures so it is not hard to see why the broker made the term 10 years and why the internal compliance officer at the company could not see any “issue” with the case. This is just theft! and it is the kind of thing that continues to give our industry a bad name.
If the term was 5 years she could have had access to her funds and could always extended the policy on an as-and-when basis…better still, she could have been in unit trusts where there are never any penalties (but the commission is much lower and takes longer to earn).
Stay away from insurance companies if you want to invest money!