Many people have endowment or education policies and I often find that they have these policies yet they do not understand the rules of these policies
A few weeks ago, I came across a gentleman and we will call him Sazi. Sazi is a professional and he comes from a big family. Even though he earns well, he has to support his parents and pay fees for his siblings. Before he knew it, he was no longer able to meet his monthly commitments and he went into debt review in 2010. He asked me to help him get out of debt review because he is now married with a young child. He wants to buy a home for his family and he cannot do so while he is still under debt review. When he went into debt review, he had 8 different debts and he is now left with just 2 debts. I explained to him what the consequences of getting out of debt review are and he was comfortable that it was the best thing for him to do but we needed to reduce his debts and let him have just 1 debt. He was going to cash his endowment policy and use the funds to settle 1 of the 2 debts and thereafter get out of debt review.
When he was cancelling the endowment policy, the company that gave him the policy made it paid up but refused to give him the R17 000 and told him he must wait for 2 years to get his money back. So he is still under debt review.
Other reasons why I don’t believe that endowment policies are good for you are the following;
- You are charged tax at 30% within the endowment policy. This does not make sense for people whose marginal tax rate is below 30%
- Why would you use an endowment policy now that there are Tax Free investments where you do not pay any tax?
- Some people have endowment policies of 10 years and even longer, what happens if you have a crisis and you need your money?
- If you want to terminate an endowment policy, you are charged an early withdrawal penalty
If you want to save for varsity fees of your children or for some other long term objective and you want a Tax Free investment, contact us at firstname.lastname@example.org
2nd Round of DURBAN Retirement Seminars in AUGUST
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