This has been on my mind for the longest. I know most people have been sweet talked by insurance agents who promise out of this world interest rates that your sum assured would have accrued at the end of the policy.
For example, my agent had told me that with a premium of KES 3,000 per month for 12 years, my sum assured would give me 60% interest. So me being all excited, i started doing the calculations in my head and getting all excited. I started seeing myself getting rich, very rich indeed in my mid 30's. To further sweeten the deal, she told me that after 4 years, i could get 35% of the interest, knowing that around that time i would be eagerly planning my ruracio (visitations to a brides home, by a would be groom), i couldn't stop smiling, then after 8 years i would get the remaining 25% of the interest, then after the 12 years, get my sum assured.
So to the mathematics of it, the sum assured would have KES 3,000x12x12= KES 432,000. If you do the interest rate of 60%, it would have been KES 691, 200, okay i may be crazy, but i am sure most people would have been sold on this awesome plan. So the other day i was thinking what if i went the money market way same amount per month.
Getting to the mathematics, let’s use Sanlam as an example, best example by the way. So if you put KES 3,000 every month into Sanlam money market fund, checking on Sanlam rate on Abacus Unit trust is 11.06% (daily yield). This gives a total annuity of KES 894,343.07. ( According to my math genius).
Now where should I invest?
Let’s start by differentiating the two using pros and cons
1. Life cover policy
a) Not really liquid-this is a good thing if you are like me, who may go into a café for coffee on realizing I don’t have cash on me, I decide to withdraw wherever cash is on my name.
b) Some amount after some time-this may be biased to my insurance company, some companies may not give you any amount until the time your policy reaches maturity.
- Money Market fund-
a) Liquidity- again a good thing, if you want your cash to be accessible to you whenever you want it. Not a good thing if you are like me.
b) Crazy profits-based on calculations above, over 200k extra when you choose to invest using money market fund.
Now What?
As Jimmy gathu would say, “Fanya hiyo hesabu”
You can easily determine what you want to invest in, based on what your requirements and needs are, both long term and short term.
As for me and my house-Money Market Fund all the way.
