Vista is designed to help you grow your money through sticking to your regular premium payments and committing to the term you have selected. You can make withdrawals or access some of the savings for emergencies. However, you really need to understand that stopping premiums will affect the value of your plan or in other words you will not have enough for the financial goal that you planned to achieve using Vista.
Think of it like putting fuel in your car. You want to drive from point A, where you are today, to point B – that goal in the future. What is going to get you there?
Remember, it is by putting fuel into the car that you get the value from buying it in the first place. Let’s consider three individuals who have a Vista policy to understand how much Vista costs.
To do this we need to highlight the true effect of charges on a savings plan. It is also referred to as 'reduction in yield'. This is the impact of all charges on your savings over the term that you have selected.
John, Shaila and Roshni all have financial goals they want to target through a Vista plan with a similar premium level selected. They all take out a 15 year term Vista, with a monthly premium of USD1,250. Let’s take a look at the reduction in yield on a Vista. What happens if you stop paying premiums and what happens when you keep paying premiums as planned originally?
Whilst John has a 15 year goal of saving up for a property purchase in the UK, he only pays for the first five years of his Vista plan. The reduction in yield that John experiences is 2.17% (based on a growth rate of 0%) as shown in the diagram below.
Why is this? John has only paid a third of the premiums we expected. The Vista plan – like a loan or mortgage – has been based on John paying for 15 full years. The lower number of premiums means that the overall effect of the charges is higher than it could be.
As John has only paid 5 years of premiums – USD75,000 in total – he is well short of the USD225,000 that he planned to put away for buying his property. The outcome is John is unable to buy the house that he was picturing 15 years previously and has to keep working towards that big goal of his.
Shaila is saving up with the 15 year plan to open up a Surf Café in Sydney and run her own business. She pays the monthly premium amount for 10 years and her reduction in yield is lower than John’s, its 1.61% (based on a growth rate of 0%). The diagram below shows that double the premium paid outweighs the charges, spreading out the cost and reducing RIY.
Why is this? Shaila has paid twice the premiums John has. The higher number of premiums paid – compared to John – means a lower reduction in yield number.
Shaila was hoping to save USD225,000 for her new small business providing healthy snacks and smoothies to Sydney’s beach goers. But as Shaila stopped saving after 10 years, she has to downsize her dream to setting up a small ice cream and coffee stand. Not the business she had always dreamed of opening. But what would the cost of Vista be if Shaila has paid all her premiums for the full 15 year term as planned?
Roshni is building towards her retirement in India and has selected the same term plan as Shaila and John. She also has the same monthly premium at USD1250. Roshni though sticks to her financial plan and pays every premium for 15 years. As the diagram shows by paying three times the premium, Roshni’s reduction in yield – or the cost of her Vista plan is 1.33% (based on a growth rate of 0%), lower than both John and Shaila’s.
Why is this? Roshni has paid all premiums planned. As she remained committed to her goal, the Vista charges have been spread evenly over all premiums rather than being concentrated across a smaller number of premiums.
Roshni has stuck to the plan she put in place 15 years ago. It wasn’t easy at times, there are so many ways to spend our cash in Dubai. But through disciplined saving, she put away USD225,000 over 15 years. With investment growth built in, Roshni is able to walk away from her Vista with USD300,000 - more than enough for a great quality of life back home in India.
If you think you can’t maintain a regular savings amount or stick to a savings term, consider more flexible options – we can provide some alternatives at Zurich. Vista is structured based on your savings term selected at the outset, think of it like other term based financial commitments such as paying a mortgage
Please take a good look at ‘The effect of charges’ flyer to get a good idea of what a Vista will really cost you across different premium levels and selected terms. If you want to know more about the concept of reduction in yield, please also chat to your financial adviser.