Can anyone advise me on life assurance cash in?

frannyscho

About 10 years ago my husband and I bought a house on an interest only mortgage and did a sort of DIY endowment with an adaptable life plan as a back up.

This costs a fortune each month, because it, as we were told, acted not only as the necessary and unavoidable life assurance scheme to protect the mortgage, but would also double as a savings policy, with the added ability to move around with us, and upon performing well would be worth approx 2million at retirement. The sum assured was for approx £295k...

We are in the process of selling the house and therefore paying off that interest only mortgage in full, thereby no longer needing that cover anyway, although we do have a mortgage on our current home (We just couldn't sell our previous house before when we moved as the market was too poor, it seemed a good idea to hang on to it using tenants until the market was better.).

The value is £20ish+ k for surrender value, having paid in just over £33+k. (We would have had to have paid something over that time anyway as some form of mortgage cover but not accrued anything as cash savings)
It's projected values for April 2022 are approx £80K@4% or £161K@8% (not exactly 2M....!!!!)

We have been sent a number of alternatives instead of cashing it in...
1) Withdrawing some cash, but keeping the policy, (but it affects how much we pay in in future)
2) Reducing our monthly payments (maybe affecting the level of life cover)
3) Taking a payment holiday (maybe affacting our monthly repayments in the future)

My questions are these....
1) Were we missold this policy because we were quoted it as being worth so much at the end?
2) Is it a waste of money to keep it at all, bearing in mind we are now mid 40's and it would presumably be more expensive to take out a new one. (I had cancer 5 years ago - all better now, but I'm considered a leper as far as insurance companies go)
3) My husband has key man insurance with his partner at work, so do we need a life insurance at all? Are they a con?

I have read your various articles and shall continue to do so, but my husband wants the 20K to do this house up, but I want to know all the options first. I don't want to find I have cut off my nose for a quick buck.

Thanks in anticipation.

dunstonh

Can anyone advise me on life assurance cash in?

Sorry, that would be a breach of FSA rules. What you are asking in that line is regulated financial advice and that is against FSA rules and board rules.

We can make comments and discuss things but which may help you research things for yourself. However, we cannot advice you what to do.

1) Were we missold this policy because we were quoted it as being worth so much at the end?

No. The illustrations used projection rates which were defined by the regulator of that time. Companies had to use those rates. With hindsight, returns have been lower on those types of plans but then inflation is lower as well so the real term gain is not too different.

2) Is it a waste of money to keep it at all, bearing in mind we are now mid 40's and it would presumably be more expensive to take out a new one. (I had cancer 5 years ago - all better now, but I'm considered a leper as far as insurance companies go)

Modern life assurance plans are generally cheaper than plans from 10 years ago. Especially investment linked ones. Unfortunatly, your health status may prevent you from changing the life assurance at this time.

3) My husband has key man insurance with his partner at work, so do we need a life insurance at all?

We know nothing about your financial circumstances so we cannot comment on that.

Are they a con?

Hardly. 1 in 5 men will die before retirement. Life cover is one of the most important insurance areas there is. The consequences to the partner/children can be awful if there is no life cover in place. I know people that didnt have enough life cover and now detest their deceased partner because they caused so much stress and upheaval.

I have read your various articles and shall continue to do so, but my husband wants the 20K to do this house up, but I want to know all the options first. I don't want to find I have cut off my nose for a quick buck.

The articles talk about ways to save money but they dont tell you if you need it or not. They also dont cover any of the different types of life assurance (around 15 types currently) or how you should write the life assurance (ie joint life, single life, life on another, in trust; if so what type of trust).

I wouldnt be surprised if there are many people who have read those articles and saved a few pound here and there on the premiums but dont have appropriate trusts in place and will be paying 40% of the sum assured to the Govt all because they didnt get the policy set up correctly.

frannyscho

Yes, sorry for asking the question in a way that would compromise anyone. I was rushing about thismorning, so I didn't mean to ask, I did mean discussion. I thought there must be lots of people in this boat.

When you say paying the 40% to the government, I presume you mean setting up the trusts in the childrens names. One of the articles I saw was about that. Thank you for reiterating the importance of the life assurance, lots of us may well be penny pinching erroneously.

I shall look all those investment titles up before we do anything at all. I am usually quite canny on long term things. We have tried using financial bod companies, but not one out of five different advisors ever got back to us after the initial consultation. Either we are very clever and they can't better what we are doing....(I doubt it) ... in which case it might be polite to tell us so....or they are used to making lots and we are too small a fry...

I don't mind delving myself because it is nice learning something new, but it is quite hard in a complex area like this one. I certainly don't want to make a shortsighted mistake, having set up well. I will carry on reading hard. I suppose it would help writing a very large comparison list with the attributes of each relevent policy type.

funnyguy

if your final decision is to surrender the policy..remember that their are companies who may offer to buy your policy at a higher ammount than your surrender value

frannyscho

Thanks you guys - I shall look into all these things first before doing anything at all.

frannyscho

I got a letter through today with another companies quote for the term assurance stuff - here is where ex-cancer patients become insurance lepers ...(although I still prefer the being alive - thanks to the royal free hospital and all their lovely oncology staff)...

Monthly price of current policy is £387.34
Monthly price of new quoted policy is £329.75 (would be £130.42 without the health issue - although I have been in full remission for over 6 years)

Now this is an extremely high cost per month. We did it because there was little choice when we took the policy out.... BUT pound for pound here is another idea to chew on.

Term assurance is presumably to give, upon either person's death, one's dependants enough to pay off the home entirely (correct me if wrong all along), and if the sum is larger than the mortgage value, then to also provide enough dosh for the rest of the family to live comfortably on, until the other spouses death, and to have enough to support all dependants until they are old enough to work.....

If one bought a property instead, and had no life insurance at all, but calculated how much a mortgage would cost, minus rental per month, plus X years property % price increase....then put all this in trust for the children...what differences/advantages to either method would there be?

I see them being able (in theory) to achieve much the same result.
Am I being naive?