Brin it's compounded over 30 to 40 years
Not bales of cardy wool 😁
It's hard to answer the question in 3, Crash, with any degree of finality since there are too many variables.
I'm not an insurance expert but here's some thoughts...
Assuming wage movement of say 2.5% per annum and a salary at the beginning of the insured period of £15,000 pa:
Insurance premium at the beginning would represent 2.43% of income
After 30 years income would be £31,464 and premium £1,560 - so 4.96% of income.
After 40 years the figures would be £40,277 and £2600 - 6.46% of income.
With just a 1% per annum wage movement the figures would be:
30 years: income £20,218; premium £1560 - 7.7% of income
40 years: income £22,333: premium £2600 - 11.6% of income
So with a very modest wage movement rate and a relatively low starting income things start to get fairly expensive moving from 2.43% of income to 11.6% after 40 years.
Given that these premiums come out of after-tax income, in reality the 11.6% may be anything up to, say, 14% of actual take home pay.
If the individual became unemployed between 30 and 40 years after taking out the insurance, he/she would have to find between 7.7 and 11.6% of their last income each month to keep financing the premiums (probably up to 10 to 14% of their last take home pay.)
In those circumstances I could see somebody dropping the insurance since it becomes a major non-essential expense.
Obviously a healthier wage movement expectation and starting salary would make the situation progressively more manageable.
(With apologies if any of my maths or assumptions are wonky.)
All the insurance policies I've taken out have had a fixed premium. Presumably these ones with a built-in increase can offer what appears to be better coverage rate but they're really only back-loading the cost. It's unlikely to be a better deal in the long run...
Thank you for that. And it is a disgrace if someone has to pack it in after paying all that in gets not one penny back.
Printing money.
Our old fella paid in around £4K to his Over 50's funeral plan (as seen on TV)
It paid out just under £3K
Me & wife paid for our funerals upfront a few years back, plus i got my sister & some mates to pay for theirs, everyone I got to pay for their funerals received a £40 voucher, plus i received the same £40, so then others I got to pay for their funerals did the same, getting £40 voucher every time.so a nice little earner with £80 off a man & wife paying for their funerals.
Funeral costs normally go up in April & September each year, we did our plan with Golden Charter, nominating our local funeral director Butterfield & sons, to receive the £40 voucher a funeral has to be paid in full, but Golden Charter do a payment plan, to me better than taking out a life insurance policy.
The "Free Pen" they give customers must be worth a few quis then
I don't do any insurance except car insurance, a legal requirement. I regard it as legalised theft.
Started putting a bit by in the 70s, added to that a bit of profit I earned buying and selling houses. Gradually I started making my own investment and have a tidy portfolio which includes ISAS, premium bonds and numerous peer to peer lending schemes. I earm on average 7.7% return. I'm not rich, but I've earned enough to retire early and comfortably. The point being I was in charge of my own money, not some insurance company with megga rich executives who will remain megga rich even if they lose all your money. A few years ago now, but didn't we the tax payers have to bail out the Lloyds share holders.
Great story Fen, you have obviously done well making your own investment decisions.
Insurance companies especially those in the US are able to outwardly invest customers premiums in other companies including takeovers and acquisitions thats Warren buffet earned $137m in a single day
That’s great, Fensmiller, and we should all try to prepare for the future retirement years the way you have.
However, at its basic level, insurance serves a different need. It provides a lump sum for your survivors if you die early and they need money to pay the mortgage and survive with a degree of comfort.
In that sense it can be a sensible choice to make. Had you died young your slowly building investments may not have been enough on their own to provide that help.
I tend to agree with you that endowment linked insurance which pays out a lump sum at the end of a fixed period as well as providing a lump sum in the event of an early death, can be a mugs game and you would easily have beaten the market with your approach.
As long as I was a primary bread winner and had a mortgage, I always had a simple term life policy that would help my wife and four kids if I fell under the proverbial bus.