# Query on life policy with linked Investment



## agencycontractor (30 Dec 2004)

Hi 
My wife has had a life assurance policy for 21 yrs  . As well as being a life policy it is also has an investment element.

She got a letter recently stating that it was due for review and it had sucessfully passed its review.
Does anyone have any idea what this means?

With the above type of policy my wife is wondering what to do now.

Is there a point where the life cover starts eating into the investment part of the policy ? 
How would one find out this?
 What should one ask the broker to get this information?


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## Brendan Burgess (31 Dec 2004)

I think you would be better to crunch the numbers yourself.

How much life cover is it giving? 
What is the price of this cover?
The amount going into the savings plan is the difference between the premiums paid in and the cost of the life cover going out.
What charges are being applied to the investment portion?

I would guess that you would be able to buy two separate products for less money which would give you a better deal.

Brendan


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## PMU (7 Jan 2005)

agencycontractor: What the review means is that the policy provider has calculated that the amount you pay in premia plus any extra you have built up in your fund is enough to keep your protection benefits at their current levels until some specified date in the future, assuming that the fund grows at a particular rate p.a. and that you keep up your index-linked premia.

The life insurance contributions start to eat into the investment part of the policy from day 1, but become significant the older you get. There comes a time – around about 50 I think – when the insurance contributions start to deplete the fund. 

These policies are basically a con and the important thing to remember about these policies is that they are open-ended policies and have no guaranteed encashment value. 

The idea is that in the early days you build up a fund, and as you grow older the insurance contributions increase and are taken out of the fund.  As far as the provider is concerned once the fund and future premium payments are sufficient to cover the future stream of insurance contributions that’s it. Therefore, the fund gets depleted the older your get.   

Also the charges are horrendous.  Most of your initial premia  probably went as commission to the broker who sold you the policy and he also would have received a trailing commission each time you increased your premium in line with inflation. So the policy needs at least 10 years to break even.  This was covered in an article by Jill Kirby in the Irish Times (6 June 1997) on a case of a couple where: ‘after seven years and at least £2,000 worth of contributions, their Irish Life Lifesaver policy is worth just £425’.

There’s an article ‘Policy holders in Irish Life take their complaints to the Ombudsman’ on this type of policy in the Irish Times on 16 January 2001. The article states that: ‘many Irish Life policy holders who took out policies more than 10 years ago did not realise that their policies might have no encashment value and were unaware that a review could lead to premium rises of more than 100%’.  The article quotes one couple who say: ‘I have no pension and until we got the letter I thought of this policy as security for me to the end of the day’. 

As far as I know the ombudsman rejected the policyholders’ complaints on a technical ground.  

I suggest that you write to the policy provider asking what projected value, if any, the policy will have at some specified date in the future.  Then you have to do some number crunching to work out the cost of alternative life cover and an investment policy.  But you are probably better off going to an independent fee-based financial advisor to do this, as the issues are fairly complex. But don’t go to your broker, he’s not your friend.


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## dello (12 Jul 2006)

i have lifesaver plan with irish life since 1988 .16637e has been paid into it it is now valued  at 28000  it has provided life cover from 15000 to 30000 currently. can anyone tell me is this worth continuing  or would my money be better off elsewhere.


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## jpd (12 Jul 2006)

dello said:
			
		

> i have lifesaver plan with irish life since 1988 .16637e has been paid into it it is now valued at 28000 it has provided life cover from 15000 to 30000 currently. can anyone tell me is this worth continuing or would my money be better off elsewhere.


 
I think that it is now considered much better practise to hold two policies - one for basic life insurance and another for the savings/investment. Combining the two into one policy makes it difficult to see what exactly the costs and benefits of each are.


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## F. Kruger (13 Jul 2006)

agencycontractor,

Find out how much your wife has contributed to the plan. Is there indexation on it? What the level of life cover is (I assume that it is small)? What is the current surrender value? What fund is it invested in and how much of the current premium is allocated to the policy?


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## RS2K (14 Jul 2006)

PMU said:
			
		

> agencycontractor: What the review means is that the policy provider has calculated that the amount you pay in premia plus any extra you have built up in your fund is enough to keep your protection benefits at their current levels until some specified date in the future, assuming that the fund grows at a particular rate p.a. and that you keep up your index-linked premia.
> 
> The life insurance contributions start to eat into the investment part of the policy from day 1, but become significant the older you get. There comes a time – around about 50 I think – when the insurance contributions start to deplete the fund.
> 
> ...



Some wildly innaccurate stuff there. Some truths too.


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## PMU (17 Jul 2006)

RS2K said:
			
		

> Some wildly innaccurate stuff there. Some truths too.


 
RS2K: I resent your unsubstantiated allegation that I posted ‘wildly inaccurate stuff’. I had one of these policies and the first part of my post (made over a year ago) is based on my dealings with Irish Life. Are you saying that Irish Life did not tell me the truth in relation to my policy? The second part of the post confirms my experiences by referencing articles in the national press by respected financial journalist Jill Kerby. Are you saying she got it wrong?


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## RS2K (18 Jul 2006)

Resent it or not some of your points are indeed wildly inaccurate. 

For example:

* "There comes a time – around about 50 I think – when the insurance contributions start to deplete the fund".*

The truth is like most things it depends on all kinds of varying factors. The premium, the sum assured relative to the premium, the smoking habits of the lives assured, the fund performance (or lack of it), the ongoing contract charges, and the most recent review undertaken by the actuary and the mortality unit cancellation rates used.

Some of these whole life policies were sold as savings vehicles, and really were expensive to set up. For the uninitiated 90% initial commission was generally paid, plus a small renewal. Indexation triggered more initial commission. Non allocation periods varied between insurers. I've remember up to 18 months. What is clear is that they were not suitable for short (in life assurance savings plans terms) periods of 10 years or less. Indexation was penal. As savings vehicles for younger people the life cover (typically 15x annual premium, which used to qualify for a limited tax relief) may quite easily have been exceeded relatively early, and when the fund value exceeded the sum assured, no further charge was made for life cover. 

Another quote - this one is actually more misleading:-

*"These policies are basically a con and the important thing to remember about these policies is that they are open-ended policies and have no guaranteed encashment value."*

You seem to be suggesting that just because a policy can fluctuate in value (most unit linked funds and all shares do btw) that it's a con? If so it's so wildly inaccurate and misleading it's not funny. 

I've performed some recent reviews for people who were sold this type of policy years ago, by commission hungry salespeople, and before the days of commissions disclosure too. In some cases remedial action can be taken and the policies can become quite effective and decent value too. The important steps are cancelling any further premium indexation, & dropping the sum assured to maximise the savings element (assuming sufficient other cover is in place). Sometimes it is possible to perform a fund switch which may help boost performance of the fund.

Another alternative is to cancel premiums completely, and leave the policy as a paid up unit linked lump sum investment. 

As I said in my earlier post you made some valid points, but some wildly inaccurate ones.


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## F. Kruger (19 Jul 2006)

Sometimes it is better to give an actual example of one of these contracts.

Husband & Wife aged 27 & 26 took out Joint Life policy 18 years ago. Premium was(is) €32.06 per month (level). Sum insured €127,000. Current surrender value on policy is €5,145 (managed fund). 

Policy had reviews after 10 and 15 years. No alteration required. Next one due in year 20 and every 5 years thereafter until they reach age 65 and then the reviews are annually.

If those same people wanted to buy a Guaranteed Whole of Life policy today (based on ages 18 years ago), for the same sum insured, they would get a quote of €135.94 per month from Hibernian.


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## RS2K (19 Jul 2006)

So total premiums paid to date €6924.96 (assumed 18 full years) and a surrender value of €5145.

I think there may be a case to be made for taking out guranteed rate term cover, to perhaps NRD on their pensions (perhaps 15 or 20 years or later if they will have dependants at that stage) and cancelling the life assurance  benefit under the existing policy?

Their current mortality charges are based on a sum assured of (€127,000 - €5145) €121855, and they are 18 years older now. The forthcoming reviews will certainly mean premium increases and/or life benefit reductions at some point.


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## CCOVICH (19 Jul 2006)

_RS2K_-NRD=Near Retirement Date?


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## F. Kruger (19 Jul 2006)

It does amaze me how someone can make wildly inaccurate assumptions about the circumstances of these clients and what they should be doing based on my previous post.

CC . Its 'industry speak' for Normal Retirement Date


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## RS2K (19 Jul 2006)

CCOVICH said:
			
		

> _RS2K_-NRD=Near Retirement Date?



Normal retirement date.


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## RS2K (19 Jul 2006)

F. Kruger said:
			
		

> It does amaze me how someone can make wildly inaccurate assumptions about the circumstances of these clients and what they should be doing based on my previous post.



Are you referring to what I posted? if so please read it properly.

I said..." *I think there may be a case to be made ...*"

I assumed nothing.


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## F. Kruger (19 Jul 2006)

A more appropriate reply then would have been "*I think there may be a case to be made ...*" provided/assuming/notwithstanding

1. That it makes economic sense to do so at current rates and their affordability to the clients
2. That the individuals are still in rude health
3. That the intermediary is not changing/churning the policy to generate additional commission
4. That it is not some childs only inheritance (other assets may be going to other children after the death of the second parent)
5. The clients fully understand what the review structure means
6. That this policy has served them as security in the past and may do so in the future because it is open-ended &
7. That that clients do not want to change the policy.


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## RS2K (19 Jul 2006)

All that went without saying.

p.s. You never mentioned the customers best interests.


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## F. Kruger (19 Jul 2006)

Well, it might be no harm to start saying it as some readers may think that these policies have no place in the market. They do have their uses in limited circumstances.

PS - Best Interest went without saying as it was at heart 18 years ago


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## RS2K (19 Jul 2006)

Agreed.


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