Life Assurance - Worth keeping?

Bob4Trish

Hi
I started a life assurance policy in December 2001 with Scottish Legal Life (now Scottish Friendly) paying £25 per month which matures in December 2011. Surrender value in September 2007 was £2,100.96. Surrender value at 09/01/2009 is £2,072.46 less a £50 charge. Is it worth carrying on with this or should I surrender & reinvest somewhere else? I imagine there are others out there in similar or worse situations & I wonder what the concensus of opinion is. Would appreciate any advice. Many thanks.
Bob

dunstonh

These plans have been more or less obsolete since the mid 90s. Expensive and limited investment choice and the tax free status is a red herring.

However, the charges tend to be front loaded and there are usually surrender penalties. So, switching at this stage may not be cost effective. No way to tell without a cost analysis taking place.

simpywimpy

what is its surrender value in 2011? You may be better to sell it on to another company that buys them as you usualy get a better return than just cashing it in

dunstonh

Its not an endowment. its a friendly society plan.

Bob4Trish

simpywimpy wrote: »

what is its surrender value in 2011? You may be better to sell it on to another company that buys them as you usualy get a better return than just cashing it in

No surrender value as such - just a chart showing what I could get back with various growth percentages

the-chauffeur_2

Before making any decisions, check whether the policy offers a benefit on death (other than simply returning the current value) - or any other 'useful' features that you won't get anywhere else.

The big selling point of Friendly Society plans like yours was that they benefit from tax free status, but this also gives rise to their major drawback - the limits on the amounts you can put into them are very low. They've lost a great deal of ground since the introduction of other tax free savings vehicles such as cash ISAs - predominantly because of the maximum contribution levels are so low by comparison, as are their rates of return, which have (in recent years) been very uncompetitive.

You can probably find out the current rate of return from the product provider and get a projection as well. Given the relatively low sum involved, it's probably just as well left where it is - particularly if you've already max'ed out your cash ISA allowance for this year - simply because interest rates are so poor everywhere right now. But if you're not max'ed out, and the rate of return you're currently getting is less than you can get in a cash ISA - and there are no special benefits tying you to the provider the money is currently with - it might be worth looking elsewhere.

Hope that helps

dunstonh

The big selling point of Friendly Society plans like yours was that they benefit from tax free status

Its a selling point soundbite but the tax free bit is largely a red herring as income within the fund is taxed the same as unwrapped investments (except fixed interest sector). The growth is exempt from CGT but with the personal allowance for CGT around £10k, it isnt really going to be an issue for most with the £25pm premium.

The big problem with these is the cost. They are dinosaurs and should have been put out of their misery years ago.