Section 60 / 72 life policy

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fistophobia

Registered User
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I have been paying annual premium on this policy, and am now considering to stop.

My broker says it has a value of 170K. When I queried if I cease premiums, he says having contacted the insurer, the cover would cease. I would no longer be insured, the policy value to date would gave nil value.
Does this sound correct?
I am suspicious.
 
A whole of life ASSURANCE policy is guaranteed to pay out WHEN you die.

A term insurance policy pays out IF you die during the policy term.

Both require you to pay a premium for the policy to be in effect.Stop the premium lose the cover.

A guaranteed whole of life policy has a fixed premium this means that at any point you can estimate if it’s good value by implying your life expectancy and working out the implied interest rate.

Let’s say you live another 20 years and the premium is €2500pa then a payout of €170k has an interest rate of 11.5%pa.

The payout on the policy is free from personal tax so you need to gross that up by say 41% and if written under a section 72 from outset and used to pay CAT there is no CAT on the policy.

There is no investment risk so the premium needs to be compared with the return you would make from saving in a bank account - Ie currently zero.

People don’t like the zero surrender value nature so the financial industry created unit linked whole of life policies. These carry investment risk and reviewable premiums and should be avoided in the same way that an endowment mortgage should be avoided.

Marc Westlake
Chartered Certified and European Financial Planner
www.globalwealth.ie
 
Last edited:
fistophobia said:
I have been paying annual premium on this policy, and am now considering to stop.

My broker says it has a value of 170K. When I queried if I cease premiums, he says having contacted the insurer, the cover would cease. I would no longer be insured, the policy value to date would gave nil value.
Does this sound correct?
I am suspicious.
Click to expand...
Yes, that sounds correct.

There is one provider, Royal London, who allow you to preserve some of the value but the norm is that you wave your money goodbye.
 
Gordon Gekko said:
Yes, that sounds correct.

There is one provider, Royal London, who allow you to preserve some of the value but the norm is that you wave your money goodbye.
Click to expand...
New Ireland also have a version. It's a good idea.

Back to the original post, what were you told when you took out the policy? Were you not told that is was to cover your children's inheritance tax bill when you died?

The thing with Section 72 policies is that, after a while, the person who took out the policy questions why they need it. And they don't need it at all. They are usually retired and don't require any life cover. It is their children that will benefit from it. The premium is reducing their future inheritance but it is also reducing/ eliminating their future CAT bill too.

If you are paying into a unit linked whole of life policy that is getting much more expensive over time, strongly consider getting rid of it, especially if you are in good health. If it is a guaranteed whole of life policy where the cost is fixed, talk to your children about whether it is a good idea to continue with it, taking account of their future CAT bill.


Steven
www.bluewaterfp.ie
 
Indeed, maybe it’s time to get the kids to contribute to the cost?

Interesting re New Ireland, Steven. I didn’t know that, thanks.
 
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