Do policies necessarily cost more?
Policies have had a bad rap for their high costs, but the cost gap is narrowing with many offering access to the same unit trust funds, including low-cost index-tracking ones, and investment platforms you would use if you made your own investments with a big life company. Momentum's Freek Kruger says the commission paid to advisers on policies is regulated, but adviser fees for investments made through an investment platform are not. However, some companies limit the fees that independent advisers charge. Commissions and fees must be disclosed, so check them out. Money asked Old Mutual and Liberty for the costs, as measured by the effective annual cost for a R1,000-a-month, 10-year education policy and the same amount invested in the company's flexible education plan, both invested in the same index-tracking fund. For Old Mutual, the costs were a not-insignificant 1% higher each year on the policy and for Liberty it was 0.7% higher each year. Some life company policies have "loyalty bonuses", which you earn if you keep the contract for the full term. Kruger says Momentum's loyalty bonus on its Investo policy reduces the cost of using its investment platform for those who stay invested for the full term. Policies are more expensive if you don't save for the agreed term.