Life Life Assurance but no pension

[MollieB]

My parents are in their late 6o's and retired with no dependents and no borrowings and with assets valued at in excess of €800,000. However they unfortunately didn't take out a pension and so are living on the state contributory pension. They both have life assurance policy's worth in excess of €100,000 each. Is there any way that they could access the value of these policy's so that they can enjoy this money while alive rather than leaving it in a will. I know they can cash them in for very little money with the life assurance providers but wonder would they be better off borrowing on the strength of these policies. Would any bank be willing to lend money on this basis?? Are there any other ideas on how they can access sufficent funds to live a reasonable lifestyle now.

 

[mercman]

Would be very surprised if a Bank would lend to them on the basis of their Life Assurance Policies. The only persons to benefit from these are those that are written in their wills to inherit their estate. If they hold such assets as mentioned, have they considered selling some of these or partially refinancing them if possible ?

 

[LDFerguson]

In the US, there is a concept known as a Life Settlement whereby an investor will buy a whole of life policy and pay future premiums, in return for ownership of the policy and its eventual death claim value. I'm not aware of any similar service here in Ireland.

If your parents own their own home there are various forms of equity release product available. One that got an honourable mention on this board was [broken link removed]. But be aware that equity release is an expensive form of borrowing as the interest rolls up with compund interest. Is there any way you and/or your siblings could extend your parents a loan instead, to be repaid from your eventual inheritance?

 

[MollieB]

Thanks for that. They would not be keen on selling any of their assets and would be against the idea of mortgaging them any further either. They struggled during the 70's & 80's to pay back mortgages on their properties and would be hesitant to go down that road particularly given the current climate. Perhaps an equity release scheme would be worth a look but I am wary of these schemes. Worth further investigating though. The US Life Settlement idea is what I had in mind alright. Surely there are investors how there who would do this. Any other ideas would be welcome!!!!!

 

[LDFerguson]

The US Life Settlement idea is what I had in mind alright. Surely there are investors how there who would do this.

If your parents' policy has a small cash value at present, this suggests it may be one of those dreadful reviewable whole of life policies, where the premiums are increased at each regular review in order to maintain the cover. Such a policy would be unattractive to any investor anyway, as if your parents live to a ripe old age, the premiums would be exorbitant.

 

[MollieB]

Thats a possibility I looked into the policy a few years ago to ascertain whether or not it was worth continuing paying into them. I was told that while the policy was reviewed each year that it could only go up by a set percentage and based on this information even if they lived to 100 it was still worth continuing with both policies. You are right in saying it makes them less valuable though. There seems to be lots of loopholes that you could fall down on in the area of life assurance. I would be inclined to avoid it for anything other than to cover borrowings myself. A good pension plan would have been much more valuable to my parents.

 

[LDFerguson]

There seems to be lots of loopholes that you could fall down on in the area of life assurance. I would be inclined to avoid it for anything other than to cover borrowings myself.

I wouldn't throw the baby out with the bathwater. Although I loathe these reviewable whole of life policies and wouldn't sell one to my enemies, never mind my clients, I still believe that life assurance has a valuable role to play as part of an overall financial plan. Not all policies are poor value or riddled with small print. Example - Term Assurance which pays out a fixed amount if you die during an agreed term and you pay a fixed premium - great for protecting a family in the event that a breadwinner dies. Or Guaranteed Whole of Life - you pay a fixed premium and the policy pays a lump sum when you die.

I think the problem (which I admit has been created by people working within the life assurance industry) is that over the years inappropriate or unnecessarily complex products have been sold by people with more interest in closing the sale than what the customer actually needs or wants.

 

[MollieB]

Since our previous discussions I have looked in to the Life Assurance policies held by my parents. One is a Acorn Life Life Plan policy which is paid a premium of €87.30 monthly and the Life Cover benefit is €113,000. The second is an Aviva NULIFE policy. The premium is €105/mth and the cover is €102,000. On the face of it the Acorn life policy has performed much better with the benefit rising significantly more than the Aviva benefits at a lower premium. Have you any experience of these policies and what should I be concerned about. The Aviva policy is subject to a review clause and and Indexation clause while the Acorn policy seems to be indexation only. Do you think the premiums will rise to a point where it isn't worth paying to anymore. I did enquire with the companies a few years ago and was assured that it will be still worth while paying into these policies even if my parents reach an old age. I am really confused and would hate to think they are paying over money to no benefit. Any info would be appreciated. Thanks.