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Should I cash in my Policy?

Posted on | September 21, 2009 | 3 Comments

Today, I received in the post a performance statement for a endowment insurance policy I took out 11.5 years ago.  €63.49 (or 50 of old money) paid monthly into a policy to mature after 20 years.

Usually they get rapidly filed away, but I decided for a change to do a personalised performance assessment and I do stress personalised – this aint coming from the book of how to assess investment performance.

Performance Yardstick 1:  Current Investment Value vs Money put in

Firstly, lets look at what we have put in versus what the policy is now worth.

  • €63.49 invested into the fund for 11.5 years amounts to €8,761.62.
  • The current value of the fund is listed at €7,254.60

Doesn’t look the best, does it?

Now even if we allow for the fact that the broker who sold you the policy gets the 1st years premium, and as it’s a assurance policy (i.e. an amount is guaranteed on your death) we’ll be generous and say that costs another years premium, we are still showing no growth on the policy.

Performance Yardstick 2:  Guaranteed future value versus encashment

The company also provides us with a guaranteed future value.

For my policy, this is €14,749.

The current encashment value of my policy is €7,255

If I were to encash my policy and investment my future monthly premiums of €63.49 into a deposit account with no fees and 0% interest, this would amount to €13,731.

This minimum guaranteed encashment value is equivalent to roughly a 1.1% annual investment return.  Personally, I think this is something you could live with depending on your risk profile, but you’d probably want to know more about how much of the potential upside you would share in.

Performance Yardstick 3:  Future Investment Value based on illustrated growth rates

Things haven’t gone well to date, but my investment company have provided 2 illustrations of future growth and how much the plan would be worth at this investment growth rates.  These are provided under instruction from the regulator for guidance purposes.  My investment manager provided these at 4.5% and 6.5% annual growth rates.

Let’s look at their estimated future value of the fund at a investment growth rate of 4.5%.  This is €16,500.

Let’s be careful not to assume that this amount equates to my current fund value + future contributions growing at 4.5%, because there are costs to account for of course.  Having cracked together a few hard numbers, I have calculated that €16,500 equates to a annualised return of approximately 2.8%.  so that’s roughly 1.7% of fund growth disappearing in fees, or about €1,900.

So should i cash in my Policy?

let’s be honest about this – most of us invest in policies such as this one so that we don’t touch the money – very few people have the self control to have money in touching distance and not find something they could spend it on.

And in our instance, we’d really like to get double glazing in, but are lacking that type of money at hand, even with us putting together such a huge heating bill last year.

what do you think?

So I’d love to hear what ye guys out there think: would you recommend cashing in this policy and getting the windows done or leaving it in the hands of the investment manager for another 8.5 years?

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Comments

3 Responses to “Should I cash in my Policy?”

  1. Cian
    September 22nd, 2009 @ 11:32 am

    There are so many variables to take into account not limited to
    1. The expected savings in the heating bill if you were to do the windows now.
    2. How happy are you with the Investment Managers and their portfolio choice?
    3. How Risk adverse are you at the moment?
    4. The Environmental Cost of not getting the windows done! – It would be nice to see a value put on that.
    5. If you do not get new windows how likely are you to get them in the near future?

    Personally I might try to get a good deal on the windows and get them done. But if I were to do this, it would be important to take on another regular savings plan (and perhaps up the contribution even if only a little). This does not need to be in a similar fund. One might like to consider one of the Regular Savings accounts which most banks etc. seem to offer these days.

    Or if you decide that you might put off the windows for a year, you could still cash it in and look for a recent rate from Anglo Irish Bank (~3.1-3.8%)etc. or a combination of them and Halifax (7% on balances in your current account up to 2000). But of course you still need to get a new Regular Savings/Investment a/c too.

  2. John O'Connor
    September 22nd, 2009 @ 1:00 pm

    Hi Cian,
    Great feedback – thanks.

    The crux of my assesment really is dissatisfaction with inv manager performance to date and the desire to get the windows done.

    But you are very right in considering that you could perhaps get similar returns through managing your own investments.

    the environmentally friendly argument is also something I didn’t take into account, but is a very valid consideration.

  3. John O'Connor
    October 8th, 2009 @ 4:42 pm

    Well done to Standard Life. I made the phone call to them just now and within 2 mins flat they have agreed a price and arranged to pay the money into my account within 5 working days.

    I was so sure that was going to take mounds of paper and time to complete!

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