Help needed with Abbey Life insurance

dc08

My mother took out a life insurance plan with them in 1989, had a full medical and started paying premiums at that time of £25 for an assured sum of around £130,000. Over the years the premiums have increased and the insured sum has varied sometimes going up sometimes going down but never by very much. Currently she is paying about £50 per month and has an assured sum of £196,000. She has just received a letter from them saying that her premium is going up to £55 per month and the assured sum is going down to £16,000!!!!! That's a reduction of £180,000. I understand these things can reduce but I would never have thought they could get away with that. She is now struggling to even pay the £55 premium and has been told that if she wants to make up the assured sum she will need to take out another premium that she just can't afford. She now has ME and can't work. She is distressed and anxious about this and has asked me to look into it. Does anybody have any knowledge of this? Is this correct? Is there anyway she can cancel and get some money back. She can't really afford to up the premium but paying £55 per month for an assured sum of £16,000 seems pointless. She doesn't want to just cancel as she's been paying for 20 years.
Any advice would be greatly appreciated. Thanks

lisyloo

Has she confirmed that this isn't a mistake i.e. missing zero.

dunstonh

I understand these things can reduce but I would never have thought they could get away with that.

They are not getting away with anything. If you understand these things you would know that. The problem is that the investment element hasnt done as well as it needed to and your mother is now 20 years older and more expensive to insure. It is a risk when you take out a policy with review points.

Any advice would be greatly appreciated.

Options:
1 - keep it
2 - change it
3 - dump it but go uncovered in future.

Her ME may prevent being able to change it (cost effectively). Does she actually need life assurance?

dc08

Thanks for your replies. No I don't really understand all this at all. I don't particularly think she needs life insurance but she has paid quite a lot of money in so far and feels quite deflated that it was all kind of for nothing. Is this because of the recession (probably a dumb question) but if so then surely things will get better as we come out of the recession. And I understand it is a bigger risk to insure now she's older but does that mean that you only make the most of your life insurance if you die young? Also, is she able to cancel and get any cash back?

Thanks

dunstonh

feels quite deflated that it was all kind of for nothing.

Thats what insurance is all about. You insure yourself to cover a potential event. If the event doesnt happen you dont get anything, if the event does then a payout occurs. This is life assurance so she should be quite happy a payout hasnt been needed

Is this because of the recession (probably a dumb question) but if so then surely things will get better as we come out of the recession.

Partly due to the recession. The investment element would have dropped to a 10 year low point earlier in the year. However, also an underestimate of future net returns and the move to a low inflation economy are other reasons.

I understand it is a bigger risk to insure now she's older but does that mean that you only make the most of your life insurance if you die young?

The type of life policy she is has about 15 years obsolete. It is true though that the younger you are the cheaper it is. Modern plans tend have the option of guaranteed premiums and not many at all have any investment element nowadays.

Also, is she able to cancel and get any cash back?

She needs to ask the surrender value.