Monday, September 28, 2009

Convertible Term Insurance

One would be forgiven for thinking that a product like Term Insurance should be pretty easy to understand. Normally, you pay a fixed premium for a fixed sum insured for a fixed term, end of story.

However, throw the word 'Convertible' in front of Term Insurance and a myriad of terms and conditions appear that are not standard throughout the Life Insurance Industry. 'Convertible' refers to the option of converting the existing policy to another type of policy, at some date in the future, without medical evidence.

The notion that price is the only deciding factor for a Convertible Term Insurance policy is a nonsense. Flexibility of the conversion option, in my opinion, carries much more weight.

In a recent e-mail survey of the Life offices offering Convertible Term policies in Ireland I asked a number of questions regarding the flexibility of the policy and what, exactly, were the policyholders options on the 'conversion' date.

Aviva/Hibernian Life - You cannot convert to a Pension Term Insurance. If you were a smoker when you took the original policy out but qualify as a non-smoker now, full underwriting (new proposal) is required to change the policy, during or at the end of the policy term.

Caledonian Life
- You can convert to a Pension Term Insurance. Client would get non-smoker rates at date of conversion and existing policy can be altered (premium reduction) to take into account non-smoker status after qualifying period.

Canada Life - If you were a smoker when you took the original policy out but qualify as a non-smoker now, full underwriting (new proposal) is required to change the policy, during or at the end of the policy term. You cannot convert to a Pension Term Insurance.

Eagle Star/Zurich Life - You can only convert the policy at the end of the original term (not during). If you were a smoker when you took the policy out but qualify as a non-smoker now, full underwriting is required to change the policy. You cannot convert to a Pension Term Insurance.

Friends First - Non-smoker rates can be availed of at the end of the policy term if you are converting to a new policy, without full underwriting. Smoking status cannot be altered during the original term of the policy.

Irish Life - Converting to Pension Term Insurance is not an option. If you were a smoker when you took the original policy out but qualify as a non-smoker now, full underwriting (new proposal) is required to change the policy, during or at the end of the policy term.

New Ireland - No Response (yet!).

It is likely that the majority of the above companies will have to review their product offerings. The profitability of this type of product is dependent on the term that it stays in force. It makes no sense whatsoever to 'force' the policyholder to jump through hoops (ie. new application with full underwriting) if they need to make an alteration to an existing policy. It is hard to reconcile how a product provider can make money on these products when an alteration will, more than likely, drive their client to another product provider.

At the moment, the Caledonian Life policy offers the greatest flexibility, at a competitive price; but this is based on current underwriting practice.

Tuesday, September 22, 2009

Best Pension Fund

Reluctant as I am to do a post on the past performance of pension funds, it is probably better to do one where it can be put in its correct context, rather than relying on it as an indicator as to what might happen in the future.

I would like to start by saying, what has gone before has no relevance as to what may happen in the future. Having said that, it would appear that many pension policyholders ( or potential pension policyholders) continue to study the past performance of pension funds with a view to factoring it in to their overall evaluation of how their pension is doing or indeed how it might do in the future.

If you need to study past performance, then I would suggest that you select 3 or 4 random documents from this page. The reason that I would take random documents is because fund managers can produce at least one period where they may be Number 1 on a specific single fund.

The information included in these monthly investment reviews are for the last five years from one product provider, but include the relevant data for all pension providers. There are, up to 13 categories of funds included and the data is broken down over 1, 3, 5, 10, and 15 year annualised returns.

In summary, you should take past performance with a pinch of salt and don't rely on it as a deciding factor on which pension provider is best for you. It is better to focus on the costs/charges, suitablity, flexibility and service available on the product.

Featured website

Warning: The income you get from an investment may go down as well as up. The value of your investment may go down as well as up. Benefits may be affected by changes in currency exchange rates. Past performance is not a reliable guide to future performance.

Friday, September 18, 2009

Pension Plans with Guaranteed Annuity Rates

Even though it is not now possible to buy a pension plan with a guaranteed annuity rate attaching to it, there are people that may have old policies with this feature.

If you have one of these policies, the provider may allow you to invest additional contributions in it to avail of the underlying guarantee on the original contract. But, because the policies are probably 20+ years old, the charging structures on them will be higher than what are currently available on the market. It is, however, possible to negotiate on the commission basis and you should do this to ensure more favourable terms for yourself.

It is often the case that a policyholder may have a number of different Personal Pensions (RACs) with various providers. When it comes to retirement, the policyholder is entitled to take 25% of their fund/s tax-free. Usually, the 25% is taken from each individual policy and the balance is used to buy an annuity, invest in an Approved Retirement Fund/s or a combination of both.

If you are fortunate enough to have one of your pensions maturing with a guaranteed annuity rate attaching to it, the annuity rate will be a couple of percentage points higher than what is currently available on the open market.

So, if you have i) a number of different policies ii) a guaranteed annuity rate applies to one of them iii) you want to avail of the guaranteed rate to buy an annuity and iv) you want to take your tax-free cash of 25%. What should you do?

Instead of taking the 25% from the policy that has the guaranteed annuity rate, you should take the equivalent amount from one of the other pension plans. It is not compulsory that the tax-free cash is taken from each individual policy, provided you can show that this amount does not exceed 25% of the total aggregate funds that are available.

If you were forced to take 25% of the policy that had a guaranteed annuity rate on it, this would put you in a disadvantageous position with regard to the benefits accruing, so Revenue will allow the aggregation of total funds available to overcome this predicament. It is essential that the 25% tax-free cash does not exceed the Revenue limits.

Monday, September 14, 2009

Inglorious Banksters

It never ceases to amaze me why investors continue to buy the shares of Irish Banks, when I stop to consider the prolonged list of (not so kosher) activities that they have had a hand or part in over the last 20 odd years.

In my eyes, the whole 'Institution' of Banking is supposed to be based on Trust, Honesty, Integrity and a bunch of other characteristics that typify good moral fibre.

Pause for a moment to consider the following Banking 'issues' :

Bogus Non-Resident Accounts, Overcharging (everything from foreign exchange to mortgages), Rogue Trading, Tax Evasion, Misselling of financial products to elderly, 'Exceptional Support' of another Bank, 100% Mortgages, Concealment of Personal Loans, Failure to ensure the accuracy of Regulatory Reports and, of course, the 'big' one that has given rise to NAMA.

I am sure there is probably a bunch of other issues that I may have failed to include, but investors continue to buy shares in these companies even though they are aware of these matters of contention.

I do business with companies and individuals because I trust them.

Why would I buy shares in these Banks? Or, why would I hold on to the shares if I was holding them?

Wednesday, September 9, 2009

What's In The News

Another Aphorism from Warren Buffett

"If it's going to keep me awake at night, I am not going to go there."..... in reply to the question whether anything (in his own financial decisions) was keeping him awake at night.

Economic 'Double Dip'

Professor Joseph Stiglitz has warned that the global economy could be heading for another dip. Savings rates are increasing so there are not that may people spending money to drive demand for products and services. I think that this reinforces our own precarious position here in Ireland. Looking at my own credit card statement for last month, the only 'Irish' transaction on it was a purchase at Shannon Duty Free.

Reports Galore

The Reports of the 'Special Group on Public Service Numbers and Expenditure Programmes' and 'Commission on Taxation' have been issued and the findings/recommendations will be debated for some time to come. Of course the 'real' debates will only commence once someone actually decides to implement any of the recommendations. Until such time as that occurs, I don't think that there is too much point dwelling on them.

I was however, disappointed that I could not find a recommendation from the 'Commission on Taxation' on allowing Gains/Losses to be offset against each other on Unit-Linked Saving/Investment type products.

The upshot of all these reports is that we need to save and spend at the same time, to keep the show on the road. A delicate balancing act for any Government in difficult times.

The Search for Value

More and more, consumers are seeking out better value on products and services. 'Mediocre' is just not acceptable with the thrift campaign that the Nation has embraced. To paraphrase Colm McCarthy, product and service providers "need to do more with less". Forced competitiveness, if you will.

PS :

Animated Films

For those of you with kids who like good animated films, you should check out some of the ones by Hayao Miyazaki and Isao Takahata at Studio Ghibli (if you have not already done so). This market does not begin and end with Disney/Pixar.