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Thread: Cashing in Life Assurance? One for the financial experts

  1. #1
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    Cashing in Life Assurance? One for the financial experts

    Back in the last century when I bought my first house, the financial advisor that I used to set the mortgage up (mortgage advice was “free” in those days), also encouraged me to have life assurance / critical illness policy to cover the mortgage value. What I ended up with was a unit-linked whole-life assurance, and I’ve being paying into this every month since then.

    Now the mortgage is as good as paid off I’m thinking about cashing in this life assurance policy. The surrender value is a few thousand, so not life changing, but it will cover the cost of a few repairs that need doing (or a really nice watch...). I’ll also save on the monthly premiums that have crept up to close to £100 now...

    Before I cash in I thought I’d check with all you experts in case there might be a compelling reason for me not to that I haven’t thought of.

    Obviously I lose the cover, and if I changed my mind in the future I wouldn’t be able to get something equivalent (don’t think these unit-linked products exist anymore). The wife says that if I die she would sell the house, buy a flat and live off the difference (nice that she seems to have put so much thought into this!), so no issue there. I also doubt there’d be any capital gains, but even then it would be below threshold.

    Any reason not to cash in?

    Thanks!

  2. #2
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    I had a life policy linked the mortgage which paid out to clear the mortgage balance on term, had a nice profit left that was invested as well as extra income over the years, never renewed life insurance no need. money in the bank* no debt, and if I cash out too soon the wife has funds to life on + pensions, downsize etc, and it won't be my problem(or hers if vice versa), child will get whatever we leave. Never considered more insurance but each case is different,if you go what will provide income?
    *Bank-financial investments as well as cash.

  3. #3
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    Chances are it would have been a maximum, balanced or minimum plan but I’d imagine ‘balanced’ to to value a decent cash in value. This means that you would have been effectively overpaying for the amount of life cover needed. However that over payment would have been invested monthly in funds giving you the ‘unit linked’ element. This has built up the value that you now have. However it wasn’t designed as an investment, its aim was to build up a fund to pay for the future cost of the life cover as you get older (instead of your premiums rapidly rising) because it’s a whole of life policy, which means it will pay out on death guaranteed as everyone dies. Most policies are term which don’t pay out as often as most people outlive the term (which is why they are cheap).

    You have a decent plan, whether you continue it is up to you. If you have a mortgage and/or dependants then I would keep it going until that situation changes. If you need IHT planning then this plan would be ideal.

    This is very brief so look into it in more detail.

  4. #4
    Grand Master RustyBin5's Avatar
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    Cashing in Life Assurance? One for the financial experts

    You would probably get more back if you complain about the advice he gave you. Whole of life cover to protect a fixed term loan?

    All joking aside though the majority of your premium paid for life cover and smaller portion of it got used to buy units which have a value. Before cashing in you need to assess whether you still have a need for cover. You are now older and general rates for CI cover in particular have soared, so I’d think long and hard before cancelling it as to replace it will cost you a fortune.
    Last edited by RustyBin5; 7th March 2021 at 16:59.

  5. #5
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    Thanks for the replies. The fact that I’d struggle to replace it down the line if I changed my mind is probably why I’ve been sitting on it for so long.

    I no longer need the cover, don’t think I need to worry about IHT issues (but worth having a think about), and struggle to justify more than £1k a year to pay for it ... but maybe it’s best to wait a little longer :-)

  6. #6
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    These plans generally offer poor value for money and are an expensive way of having life cover and saving. I suspect the charges are pretty high. I’d cash it in and put your £1000pa into an ISA or top up your pension pot, if you don’t need the life cover. Even if you want some life cover, get a quote for some short term cover

  7. #7
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    If its a with profits policy let it run !!! no brainer !!!





    B

  8. #8
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    I had a whole life/saving policy set up in the 80s. I no longer needed life assurance about 20 years ago and decided it was better to cash it in at that point. I can't remember how much it yielded but I can remember being pleasantly surprised (it wasn't very much but I had very low expectations of it).

    Sent from my Pixel 4a using Tapatalk

  9. #9
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    Quote Originally Posted by Brian View Post
    If its a with profits policy let it run !!! no brainer !!!


    B
    It’s not. It’s a unit linked life assurance policy with big charges. You buy units and they charge you, they then sell units to cover the life assurance, and they charge you, and the cost of the life assurance is very expensive. Many years ago I used to work for a company that sold them, the financial advisors loved them as commission was massive.

  10. #10
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    I think you need to find out what exactly the charges are, it sounds like they could be significant. I`ll echo the previous advice regarding your current/future need for life insurance. You're right to question whether its worth keeping, buying critical illness cover would be expensive but ask yourself whether you really need it?

    £1200/year could go into something far more worthwhile as an investment. L & G High Income Unit Trust is a fund I like, it can be ISA'd and last year it paid around 4.4%.

  11. #11
    Grand Master Dave+63's Avatar
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    Quote Originally Posted by JonRA View Post
    I had a whole life/saving policy set up in the 80s. I no longer needed life assurance about 20 years ago and decided it was better to cash it in at that point. I can't remember how much it yielded but I can remember being pleasantly surprised (it wasn't very much but I had very low expectations of it).

    Sent from my Pixel 4a using Tapatalk
    I was in a similar position but when I was looking at cashing it in, I read that there’s more value in selling it on. I ended up getting around double the surrender value in 2006 for a policy that was due to pay out in 2013.

  12. #12
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    Quote Originally Posted by Dave+63 View Post
    I was in a similar position but when I was looking at cashing it in, I read that there’s more value in selling it on. I ended up getting around double the surrender value in 2006 for a policy that was due to pay out in 2013.
    That’s a with profit policy and there is a market for them (or certainly was). The OP has a unit linked whole of life policy and I doubt anyone would want to buy that.

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