Asked on 10 Oct 2019
Prior to me taking over the policy, my parents took loan from the policy and a 6.75% pa interest is tight to the loan. The premium earns me interest but based on AXA participating fund performance.
1) should I pay off the loan?
2) should I cease the policy and take the surrender value (minus off the loan) and use the money to pump into other plan/policy?
Hi anon, we'll actually have to look at the numbers as well as the policy details before deciding on the next steps. However, for a premium of $60/mth, this should be affordable if you are working. Generally, if the premiums have been paid all this while and no loan is taken, the numbers usually support not surrendering.
However, if a policy loan is taken, as is your case, this usually works against you. Again, if you could pay back the policy loan, the policy may be worth keeping, but only with the numbers will we be able to tell. Most of the older plans which have been around are likely to have accumulated significant cash value and these only compound yearly. As you mentioned that your policy covers CI, it is also another important factor to consider.
It would be advisable to look at how this plan fits into your overall coverage. As you mentioned that it is a savings insurance, it seems like there will be a maturity of the policy at some point. Your CI cover might be a waiver of premiums on CI, so we actually have to read the policy wording to confirm that. If it is indeed a savings policy that matures, you need to consider what happens to your coverage after that. If however, it is a Whole Life with cash value, then again, we need to look at the numbers before deciding if you should repay the loan and continue premiums, or if other options such as a new limited pay plan/policy would make sense financially. You can contact the insurer to get a revised policy illustration, after which you can contact an advisor to look at the finer details.