Life Assurance - Whole of Life Plan Annual Statement

SM_UK

I've had a whole life assurance plan since 1977, paying in a modest £5 a month. In that time the provider of that plan has changed and from seeming like a good investment, it now feels like an income stream for the current insurance company. I recently received a statement that was actually decipherable, and came full of surprises. It appears that whereas I'm paying in £60 a year (plus tax refund), the charges are £77.10. A not so big surprise was that the fund is now worth £9159.29 over last year's £11129.92, but the cash in value is £6225.21 after a £2839.38 cash in charge plus £94.70 capital gains charge, yet the death benefit is only £5114. The best option looks to cash it in, but I would appreciate some advice on this and explanation why the charges are so big. My health is excellent by the way, I live healthily, I'm in my early 60s, and I'm hoping to live on for many years yet.

TELLIT01

If the fees are more than your annual payments it would seem to be a no-brainer to cash it in now as the value can presumably only go down.  The cash in value being higher than the death benefit would tend to support that view even further.

SM_UK

I just wonder if the numbers are such that it entices one to 'bail out' just now rather than see the policy out, but essentially in the long term interests of the insurance company. Apart from the issues raised, I'm looking at a higher overall fund value in the next couple of years when the markets improve before I make that choice (down nearly 18% from last year).

dunstonh

and explanation why the charges are so big.

Its a 1970s plan priced on 1970s inflation and 1970s life assurance costs.  These sorts of plans went obsolete in the 90s and would normally be only retained if there was a contractual or medical reason to keep them (or one with very niche decent terms)

Old_Lifer

Your post indicates that you have a unit-linked whole life policy.  

Although  the premium is £5 per month,   you would have  actually paid  less than this  for  nearly 40 years.   It was only after life assurance premium relief was  finally withdrawn  in 2015, that you would have  paid the full premium.

Your post indicates that you have been  receiving annual statements  but have now looked more closely at your latest statement.

Since last year's statement your fund has fallen  from £11129.92   to  £9159.29.     The fact that your  cash-in value is only £6225.21  suggests that  in current conditions,  a Market Value Adjustment is being applied to surrenders.

As the charges now exceed the premium,  this indicates  it is reviewable  policy,   where the cost of the life cover  increases each year.    Most of the charges will be the cost of the life cover    Where a reviewable policy has  only a small sum assured and a reasonable- sized   investment pot,   although the policyholder may not be asked later in life to pay a higher premium,  the cost of the life cover  will increase  each year  and this will eat more and more into the investment pot.

Your policy has an investment pot of £9159  but a sum assured of only  £5114. 

I would strongly urge you to look at your policy document,  in particular the section  dealing with  payment on death.    Does it say something like this:

     ' on the death of the life assured we will pay the sum assured  or the bid value of the units held, whichever is the higher'

I would expect most policies to stop deductions for life cover when the investment pot is more tnan the sum assured.