Q. At her request, I was looking at my mother’s financial affairs recently, as she was disappointed with the payout she received from a big insurance company on a long established policy.
She took it out for her grandaughter Milly, my daughter, in 1992 when she was 1 year old, and was meant to help her with university costs. My mother paid £30pm, and was told it would be better than cash. After investing £6,120 over these years, the payout was just £4,067, and my mother was asking why this amount was so low?
A. We understand your frustration, and this does look a very low amount. Having looked at this further, it seems that this plan provided life cover as well as being an investment. As your mother was age 68 when she took out the policy, this means around a third of all premiums were used for this purpose. The remaining £4,000 or so invested has performed poorly, and of course there were charges made by the provider.
It is a classic case of a poor value plan being sold to someone who did not fully understand what it was they were buying. It’s not your grandmother’s fault though, as these plans are often complex and difficult to decipher.
If she is planning to invest in the future, she may wish to consider a straightforward bank account. Whilst the potential for growth on your savings is not as good as, say, shares, there is little downside to the capital invested.
