Aviva capital bond

longleggedhair

I was approached by a friend regarding the above, I'm normally quite savvy with money related things but I have never heard of these. Essentially he invested £6000 25 years ago. The policy is payable on death for an amount of £50,000.

Some years later Aviva contacted him and said due to investments not performing well etc to maintain the life cover he needs to invest another £4000 which he did.

Fast forward to now and he has received another letter along the same lines but to maintain the £50K payout they say he needs to put in another £22,000!

I've never heard of any product like this. I told his he's probably best to cut his losses because they could keep coming back for more.

AnotherJoe

Something certainly doesn't sound right.
Assuming it really is Aviva, then I would suspect he hasnt bought quite what he thought he did.
How much would it cost him now to buy £50k life cover?

dunstonh

I'm normally quite savvy with money related things but I have never heard of these

They are the old fashioned plans of the 70s and 80s. They were mostly obsolete by the early 90s. Most people have switched to term assurance if their health is ok.

These plans relied on the investment returns hitting the target growth rate to maintain the sum assured. Problem is that the returns of the 60s,70s and 80s which much higher than the last few decades. So, the target growth rates are just too high for modern standards. hence, why the premium needs goes up.

Malthusian

These policies are not unheard of but they would usually be called single premium reviewable whole of life assurance, as opposed to flogging the poor overused word "bond" even further. (Assuming it is whole of life?)

If he doesn't pay up, does the policy expire with nil value or is there still some value remaining in the policy (but not enough to sustain the life cover)?

If he is now totally uninsurable and his wife and kids would be out on the street without the extra life cover, it could in theory be bad advice to tell him to chuck it, but this is verging on exam question territory.

longleggedhair

My understanding is that they have said if he doesn't pay up the cost of the life insurance will gradually whittle the capital down to zero.

I think considering they want over £20,000 for a sum of £50,000 seems excessive to me, he is single with adult children so I think he would be better leaving the money in the bank.

the_trainwatcher

If it sounds to good to be true it usually is

LobsterMemory

But it doesn't, that's the point

Malthusian

longleggedhair wrote: »

I think considering they want over £20,000 for a sum of £50,000 seems excessive to me, he is single with adult children so I think he would be better leaving the money in the bank.

I fail to see any need for life cover based on what you've told us. He may as well take whatever surrender value is left.

Old_Lifer

From the limited information we have this would appear to be a non-qualifying whole life policy.


These policies were often used as investment vehicles and were packaged as bonds.


Although your friend may have assumed he was investing the money, the figures suggest this was not primarily an investment product. I would expect an investment bond to have very little life cover, often not much more than the amount invested. This £6000 bond had £50000 of life cover which indicates that the main purpose of the bond was to provide life cover.


As may be expected, the premium is reviewable. The cost of purchasing £50000 of life cover will increase each year as the life assured gets older. The older the life assured gets, the greater the rate of increase each year. The figure of £22000 is presumably the amount that needs to be paid into the bond to ensure that there is sufficient in the 'pot' to purchase £50000 of life cover each year until the next review date. At that point your friend will be even older and the cost of purchasing £50000 of life cover each year will continue to rise year after year.


We know nothing of your friend's financial circumstances and we know nothing of his state of health but may I suggest that he consider carefully the amount of life cover he actually needs.