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Thread: Life insurance query

  1. #1
    Craftsman Fender's Avatar
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    Life insurance query

    Mother, in her 70's, has sent me a letter she received from Zurich regarding a life insurance policy she's been paying into for God only knows how long.

    Approx figures:

    Currently pays £65 per month, which pays out circa 50k upon her passing. They're asking for £105 from next month, or else the payout drops to 45k.

    She's happy to take the 5k loss and stick with her current monthly contribution, and is considering weighing in the policy for a cash payout - I don't have the settlement figure but expect it to be less than what she's paid in over the years.

    Anyhoo, for the payment increase they have cited 'the continuation of a low interest rates environment'.

    Crystal balls at the ready: Cash in now, or leave it until next year after interest rate rises have been taken into account by the provider? Are early redemption payouts even affected by this?

    I've zero idea how these things work so don't worry about not being a financial advisor.

  2. #2
    Master
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    There could be a number of things it is, but let’s assume it’s a ‘whole of life’ policy which carries a number of options from the outset. If this was set up years ago it could have been on a minimum, balanced or maximum premium. In short some policies had larger monthly premiums at the outset so a ‘fund’ was built up to offset against future increases as the policy holder got older. Some had small premiums at outset, with a larger rise due years down the road. Most went for an in between premium ‘balanced’ where you got the cover but laid a little extra to help offset future rises.

    It’s quite hard to explain this in a short post as there’s so many variables, but I’d imagine your mum has some variation of the above.

    Does your mum now need the cover? Can she afford the extra premiums? What is the surrender value? When is the next review date as the premium could increase far more or the cover could reduce substantially? What’s her health like?

    Just a few things to consider and discuss with your mum.

    One question to ask your mum - she would have taken that cover out for a reason at the time, is that reason still valid? I’d never advise anyone to cancel a life insurance policy (for obvious reasons), but I would ask people to think about why they have it and if they need it.

    P.S. that drop doesn’t seem a lot which is a positive.

  3. #3
    Master jukeboxs's Avatar
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    It sounds like a maximum cover whole of life policy (where premiums / benefits can be reviewed by Zurich if investment returns differ from those expected when originally sold). This policy will return a specified payout on the future death of the policyholder. The surrender value will be based on the value of past premiums paid less expenses and less the cost of life cover, plus investment returns (for the policy years passed to date) - assuming that investment returns exceed life cover and expenses, which is not unreasonable (although this is dependant on the size of the policy), then the surrender value could be greater than the simple sum of past premiums paid. As noted, this surrender value will reflect actual investment returns (earned on the investment fund in which the policy is invested) - i.e. it's not directly related to interest rate movements. Any surrender will usually incur a small penalty (deduction), and this deduction could be higher if the policy is invested in a with-profits fund.

    I'm sure that Zurich would be happy to chat to you (with your mother's permission) about the options available to your mother for this policy.
    Last edited by jukeboxs; 14th September 2022 at 14:24. Reason: Correction

  4. #4
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    At your mother's age, I would doubt that the reason for the policy exists? Defintiely get a surrender value unless she really wants to leave her survivors that lump sum.

  5. #5
    Grand Master hogthrob's Avatar
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    £65 per month for £45K payout

    or

    £105 per month for £50k payout


    So that's £40 extra per month for an additional £5k payout, and she has to make that payment for 125 months to break even. I'd say £65 / £45k looks like the best option, if taking a lump sum now doesn't make sense.

  6. #6
    Craftsman Fender's Avatar
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    Thanks for taking the time to reply, chaps. Much appreciated.

    She's selling her house at the minute and says she'd like some extra cash to help with a new purchase. Which makes sense.
    Investing the sum in bricks and mortar will hardly leave her 'kids' high and dry in any event.

    I'll give them a ring.

  7. #7
    Grand Master Onelasttime's Avatar
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    Quote Originally Posted by Fender View Post
    Thanks for taking the time to reply, chaps. Much appreciated.

    She's selling her house at the minute and says she'd like some extra cash to help with a new purchase. Which makes sense.
    Investing the sum in bricks and mortar will hardly leave her 'kids' high and dry in any event.

    I'll give them a ring.
    Do you have power of attorney? I'm guessing not if your mum is selling her house and buying a new one. I doubt they'd speak to you about it otherwise, but I might be wrong.

  8. #8
    Grand Master sundial's Avatar
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    It's not life 'insurance ' it's life 'assurance' ... and there is likely a healthy market for for cashing in ... other than through the assurance company
    Last edited by sundial; 15th September 2022 at 20:59.
    "Well they would say that ... wouldn't they!"

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