Clive Duncan, master financial adviser and life underwiter with Sagicor Life Jamaica. - Rudolph Brown/Chief Photographer

Personal finance- advisers will tell you that it is prudent to have life insurance, mostly as a financial cushion for your family.

What they don't say is whether you can overdose on insurance, or what opportunity cost you face were those funds to be invested in securities or a retirement product.

The answer often tends to rest on each person's priorities.

Life insurance as a product promises future protection for those you hold dear, but is also a means of investing funds towards retirement, the education of your children and other long-term needs.

The rewards, local life-insurance advisers note, depends on what you are willing to pay for and how long you are prepared to wait.

Could you be so daring as to buy a policy that pays you $100 million at retirement? What about $1 billion? Or are you only able to set aside enough for a more modest $10 million policy?

Truth is, you buy what your pocket can afford.

It is recommended that you set aside 10-20 per cent of your annual income towards a combined life insurance and investment product.

In reality, however, you can get coverage of less than $1 million for a monthly premium as low as $1,007.

For this amount spent with one local company, the beneficiary named in your policy would receive $900,000 in case of death and another $900,000 if death was accidental.

Investment brokerage

But could you do better with an investment brokerage instead of leaving your money in an insured fund? As it turns out, local investment firms are unimpressed with $1,000/month of savings.

That $1,000 that your insurance company is willing to take would not qualify you to open an account at the securities firms.

So Sunday Business posited a figure of $8,200. Still vastly insufficient, said the firms polled.

At JN Fund Managers, for example, the minimum required is $250,000 for investment in 30-day to one-year fixed instruments. Additions to the initial investment can be no less than $100,000.

And sounding most unexcited about the sum to be saved, a Jamaica Money Market Broker representative said on that amount its Save Smart product would not offer a fixed rate of return - on the day in question the rate was at 9.29 per cent per annum - while interest paid monthly would be taxable.

The greater the sum you are prepared to turn over to them, however, the higher the interest rate paid.

Investment adviser, Scotia DBG Investment branch manager Dave Dixon, states that in general, a diversified portfolio including fixed-income securities, rental properties, bonds and other products, can be independently used in a medium-term and long-term strategy for the same goals as an insurance product.

"For the long term, blue-chip stocks pay the best dividends," he said.

However, Dixon notes that if one has children, insurance must be a part of one's spending outlay.

If retirement is your concern, insurance agents will suggest coverage intended to duplicate your current lifestyle.

Local products

Dave Dixon, branch manager at Scotia DBG Investments Limited, Ocho Rios.

Many local products are a mix of life insurance (death benefits to survivors) and investment.

It is suggested that, as a rule, the death benefit should be about six to eight times your annual earnings.

If you are earning $900,000 annually, ask for minimum coverage of $4.8 million.

Life insurance, Dixon says, does not have to be expensive .

Many of the expenses faced by older Jamaicans tend to be medical costs. But, if you can implement lifestyle changes, you could reduce these drastically.

It is quite possible, he suggests, to get coverage of $5 million for $4,000 per month; and one should shop around for the best products.

But, Clive Duncan, master financial adviser and life underwriter training council fellow or LUTCF with Sagicor Life Jamaica, notes that penny-pinchers are not likely to reap the true rewards of an insurance and investment product.

He adds that an insurance policy can be used as collateral for a credit-union loan to achieve other objectives, including making the deposit on the home of your dreams, or paying tuition for university.

For $7,400 in monthly premiums with one local company, a 21-year-old male in good health would be able to collect on the policy as follows:

Age 31 - $2.3 million

Age 41 - $13.7 million

Age 50 - $52.7 million

Age 55 - $106.9 million

Age 60 - $212.5 million

Age 65 - $417 million.

That payout assumes that the portion of the premium paid towards death benefit of $1 million is only $611 indexed to an increase of 10 per cent each year, with the remainder going straight into investments.

For older Jamaicans, the returns may be less.

For a 38-year--old woman with two dependent children who begins a policy with premium of $8,200 monthly soon after her birthday, she may be assigned a death benefit of $7 million, for which she may pay around $5,200 monthly.

The remaining $3,000 would go towards investments, which in total - it is estimated - would net her US$18.6 million at age 60 and US$42.4 million at age 65.

The longer you have your policy, the more benefits you are set to gain, notes Duncan, as management fees, interest and other charges are taken from your premium in the first three years, but after this, the amount dedicated to investment increases.

Insurance-product income often triples between age 60 and 65, providing a huge incentive for policyholders to continue making payments until the later age.

Policy weighting

You will instruct your agent how you want your policy to be weighted - that is, how much to put towards death benefit and how much to plow into investments.

An older Jamaica with dependent children would be spending more on the life-insurance portion and less on investments.

Local insurance companies have an assortment of special "funds" into which they invest money committed to them. These include fixed-income securities, tradable equities and real estate.

It is not wise, said Sagicor's Duncan, to remove the cash value from your policy, as it reduces the amount that you are set to get in your contract. It is better to use the policy as collateral.

On the expiration of your contract period, you should go into the company with your policy document and your identification and collect your check.

avia.ustanny@gleanerjm.com

The size of your family.

Whether your spouse works and his or her earning capacity now and in the future.

The number of people who are financially dependent on you and for how long.

The death benefits your family will receive from other sources, including any life-insurance plan at your work.

Any special needs such as mortgages, college-education funds and estate planning.

Your current health. What companies are willing to provide in life insurance is in some cases determined by the state of your health. Non-smokers and women get the best deals.

Men, the local companies note, live a riskier lifestyle and so are charged more for insurance.