Should I encash poor value old life/savings policies?

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My father has four life assurance / savings policies. The charges are high compared to today's rates. My query is should he cut his losses now, or keep them?

Eagle Star (3 policies)

3% bid-offer spread

40% allocation rate in year 1, and first year of any increase in premium
60% allocation rate in year 2, and second year of any increase in premium
100% allocation rate in year 3 onwards

Annual mgt charges = 0.25%

Policy fee = £2 per month, increasing with CPI.

Combined premia = 7.35% of salary, about 5000 pa. Increase annually.
Life cover = 56,000 approx
Cost of life cover = NIL (as fund values > life cover)


Canada Life

1. Initial management charge (bid-offer spread) = 5%

2. Annual management charge 6.75% on initial units (first 2 years premium)
0.75% on accumulator units

3. Policy fee initial = IRL 19.20 p
2003 = euro 39.62

4. Cost of life cover 2003 = 565.09 (36% of premium)

Life cover = 85k.

One option would be to buy pure life cover, say 100k over 10 years for 77pm, and encash all the policies and re-invest into a low-cost Quinn Life or similar fund?

 
Eagle Star (3 policies)
Annual mgt charges = 0.25%

0.25% seems a very good rate.
 
0.25% seems too low - are you sure it is correct?

I looked into a similar situation a while back for a family member.

I would think you should be able to get 100% allocation rate (with no bid offer spread) and an annual fund management charge of 0.75% - 1% and no policy fee

this assumes NIL COMMISSION policy - ie to avail of this you would need to take out a policy on a NIL commission basis - Strangely this is usually only possible by going through a broker rather than approaching a Life Company directly.

You might well be better getting a fee based broker- pay a one off fee and they will take out a nil commission policy for you. THere used be some cheap execution broker who do this.

The charges on the current policies do seem rather expensive and I would expect you would get better value with a new policy. If there are no exit penalties with current policies you may be better transferring these too.

Policies with initial units are particularly penal.
 
What age is your father ? Does he still require life assurance ?

He probably needs a complete review of his financial situation before anyone can advise on these policies.
 
Thanks for the replies.

The annual mgt charge on two of the Eagle Star policies is 0.25%, which seems very good.

But bear in mind there is a 3% bid-offer spread, plus the policy fee. Also, note that the allocation rate of just 40% and 60% on the first and second year of any increases in the premiums, which happens every year.

My father is 60, married, he is the sole earner.

These polices were started in 1984, 1990, 1992, etc.

Cameo, I know exactly what you mean. I have advised him to cancel and encash all four policies. If he wants life cover, he should buy pure protection (no savings) term assurance from the likes of www.labrokers.ie. And then invest the lump-sum in a low-cost, low-risk managed fund.
 
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