Help and advice r.e. my Grans Life Cover

CaptainBaxter

Hi all,

I'm hoping someone can help out my Gran with her life insurance policy.

She opened it in 2009 paying ~£50/month with the bank - TSB/Scottish Widows. At the time I wasn't aware of this and probably too young to help or advise, 

I only recently became of aware of it when she was saying she felt money was getting more tight and asked me to look at her bills. I noticed she is now paying nearly ~£100/month on her life insurance. Which I thought was too much so I called the company to find out if they could lower it and to learn more about the cover she had signed up for.

As it turns out, if my Gran were to pass tomorrow, I would receive £7,000 to support with the funeral. She has to date paid £10,000 into the insurance plan. I asked about the other £3,000 and they informed me that they took that as a fee for managing it. I asked what was the benefit of using them over an ISA, they are a bank so why did they give her this instead, he couldn't give me a good answer beyond it being piece of mind for my Gran. I then asked if we could close the account and take out the £7,000 just now. He told me that I am unable to do that as the contract states if she closes the account before her death then she forfeits the contract and they keep the money. I was in shock, are they even allowed to do this?! I then said OK fine, well would it be possible to lower her monthly payments as times are difficult, to which he said if we do that then her pay out would drop to £3,000 upon her death. I was started to get flustered at this point and have requested they email me all of the policy information and documents so that I can review them. 

While I wait however, I want to know is this right? Do we really have no option but to sacrifice and lose all that money or do I give my Gran money to help support her paying the insurance? I don't mind doing that it's just the principle. It seems more logical to me that she put this money into an ISA, she would have been much better off. I currently have Power of Attorney for her so I don't see why the insurance is needed in the first place. Sorry for the long winded story, I do hope someone could share some insight on this and perhaps there is an option we can follow so my Gran doesn't get pinched. She might live another 10 years, how much will she be paying in then?!

Thank you in advance.

All the best,
Mark

DullGreyGuy

You really need to find out exactly what she has... it sounds like a Whole of Life policy with reviewable premiums. 

Its insurance, not an account, just as you dont get anything back if you have car insurance and get to the end of the year without a claim nor do your with a modern whole of life policy which you cancel early. Insurance works on the principle that some pay in more than they ever take out and others will get paid out much more than they ever paid in. Most people are thankful that they haven't had to make a claim! Whilst there will be an element of the premium taken to cover administration that will be relatively small compared to the cost of paying out the claims for all the customers that died of covid etc. 

If she had died a month after taking out the policy she'd have been paid the full sum insured, with an ISA her estate would have just gotten a first payment back. 

With reviewable premiums the premiums are initially fixed for 10 years, after that and every 5 years there after the premiums are reviewed. If performance was no inline with original projections then you are given a choice of either reducing the sum insured and paying the same amount or paying more premiums and keeping the same insured. Unfortunately you gran has lived long enough to hit the point of having paid in more than she'll get out but thanks to Covid that doesn't mean everyone has been in the same boat. 

Some policies do have a maximum age for payments, others you continuing paying as long as you want cover. 

The real question is if there is a financial need for the policy? Many WoL policies are there to cover inheritance tax so that the kids can keep the family home rather than being forced to sell it to pay IHT etc. If there is no financial need then it's questionable if its economic to continue paying into it. 

Keep_pedalling

She is lucky, the only people who get paid more than they put in are those who die young. 

sheramber

Your gran is paying £100 per monht- £1200 per year.

If she lives for another 6 years she will pay in at least  £7200. ( more if the premiums rise) but only get £7000 back

If she stopped the policy and put the money in a high interest bank account instead,  in 6 years she would have £7200 + interest.

If she dies before 6 years the pay out will be  £7000 from the policy  but less from the bank account .

It depends on which she / you are more comfortable with.

dunstonh

 I was in shock, are they even allowed to do this?

Its unclear what product type you are talking about.   Investment linked life assurance has a value that can be surrendered but they have been largely obsolete (or rather niche) since the mid 90s and very few would be set up this millennium and certainly not by a bank.

Non investment life assurance never has a value.  And that sounds like what you are referring to it.  In which case, yes they can do that as that is how insurance works.     e.g. have you asked for money back on your house insurance or car insurance?  Life assurance is the same.  You pay the premium and it pays out if you die.

I pay just over £100pm for £600,000 sum assured.    I will pay £25,200 over the term.   And I hope that it never pays out.  Yet it would have cost me £25,200.   

It seems more logical to me that she put this money into an ISA, she would have been much better off.

That is a decision based on the benefit of hindsight.    She hasn't died, so a savings option would have been better.   She has lived longer than expected.  Had she died earlier, the life insurance would have been better.

It sounds like it is an over 50s style life insurance plan.  These are notoriously bad value for people that expect to live longer.  Proper underwritten life insurance is better for most people that take it out but most people that buy over 50s plan do so without advice.    They choose to do it not knowing better alternatives may exist.       You typically find that people in bad health and those that do not expect to live long will buy over 50s life assurance and pricing reflects that.

theoretica

Your granny is not getting any benefit from paying into this account - it is only after her death that it might pay out.  Unless there is the emotional benefit of knowing that her heirs would have the payout.  Are you her only heir? My thought is do you (with other heirs if relevant) think it worth continuing to pay, with your money, in anticipation of the payout that would benefit you on her death?