This is an article by Coert Coetzee, the founder of the Treoc group and is very interesting reading – Martin
“If you tell a lie long enough, loud enough and often enough, the people will believe it and people are more likely to believe a big lie than a small one.” – Adolph Hitler
Is This The Biggest Lie?
A lady was recently telling us about an endowment policy that she took out with one of the big insurers. If you look at the figures, it doesn’t appear to have been a bad transaction at first glance.
She’s paying R400 a month for a product that, according to projections, will pay out R500,000 in twenty years’ time. The monthly contributions also get increased by 10% each year, so that they’re kept in line with inflation. It looks good – and don’t forget that it’s being sold by one of the staunch old South African companies to whom just about half the country belongs. They’re also approved by that mighty consumer protector, the Financial Services Board. And bear in mind that these powerful companies have the best actuaries working for them. So there’s therefore no way that this could be a scam. Think again, my dear friends. This is the biggest organised and legalised form of a scam you can imagine.
Anyone who can do maths can see how the scam works, but I think our people are like lambs being led to the slaughter. They don’t do the maths, they ask no questions, and one day in twenty years’ time they’ll just take the money and say thank-you.
I want to show you today how to do these simple little sums, but before we get started we first need to reflect on an important assumption here, namely inflation. The government would very much like us to believe that inflation is lower than their goal of 6%, but any housewife will tell you that consumer inflation is higher than 10% per year. Just work out what a trolley of groceries cost you 5 years ago, in comparison to now. For this exercise let’s use an inflation rate of 10%, like the insurance company uses for its annual increase in the contributions.
Let’s do the maths! All that you do now is take a piece of paper and draw four columns for yourself. Column one is the number of years. Column two is the inflation percentage. Column three is the annual inflated contribution. Column four is the expected deflated value of the endowment policy at that stage. In column three, Contribution, we take the R400 per month and multiply it by 12 to determine the first year’s contribution. That’s R4,800, which is then increased by 10% each year. In column four, Value, we start with the promised, projected payout of R500,000 and decrease it by 10% per year. The reason for this is that money’s buying power decreases each year, thanks to inflation. This is how the table looks now:
| Years | Inflation | Contribution | Value | |
| 1 | 10% | 4 800 | 500 000 | |
| 2 | 10% | 5 280 | 450 000 | |
| 3 | 10% | 5 808 | 405 000 | |
| 4 | 10% | 6 389 | 364 500 | |
| 5 | 10% | 7 028 | 328 050 | |
| 6 | 10% | 7 730 | 295 245 | |
| 7 | 10% | 8 503 | 265 721 | |
| 8 | 10% | 9 354 | 239 148 | |
| 9 | 10% | 10 289 | 215 234 | |
| 10 | 10% | 11 318 | 193 710 | |
| 11 | 10% | 12 450 | 174 339 | |
| 12 | 10% | 13 695 | 156 905 | |
| 13 | 10% | 15 064 | 141 215 | |
| 14 | 10% | 16 571 | 127 093 | |
| 15 | 10% | 18 228 | 114 384 | |
| 16 | 10% | 20 051 | 102 946 | |
| 17 | 10% | 22 056 | 92 651 | |
| 18 | 10% | 24 261 | 83 386 | |
| 19 | 10% | 26 688 | 75 047 | |
| 20 | 10% | 29 356 | 67 543 | |
| Total Contribution | 274 920 | |||
If you now add up all the contributions in column 3 over the 20-year period, it comes to an amount of R274,920. The value you’ve bought with that is that amount of R67,543 in year 20 in column four and NOT R500,000 like they told you. With inflation taken into account you’ve therefore paid R274,920 for R67,543. Would you have made this ridiculous “investment” if you had known what you were buying?
Do you know how ordinary people do these sums, though? (And this is why the crooks have been getting away with this scam for generations already.) Ordinary people think they paid R274, 920 and got R500,000 out. This is the illusion that the crooks create, and it’s also what it says in the policy documentation. You do get out an amount of R500,000, but then you’re not taking the effect of inflation into account. That is how they legally prey on the unsophisticated and trusting public. With their clever actuaries’ “complex” calculations they bullshit the police, the FSB, the brokerage industry and the public.
Ordinary people who receive the R500,000 after twenty years think, “What a fantastic investment!” Then they think that the insurance company is wonderful and they’re sorry that they didn’t take out more of these endowment policies when they were young. That’s also the message that people communicate to their children, which is why the crooks get away with it and can carry out the same scam with your children.
What do they do with your money every month? They invest it in property. That’s why they have such enormous property portfolios – because they pay only R67,543 for a property value of R274,920. Show me a bigger scam!