Cashing in whole-of-life insurance policy an option

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In 1986, my dad (now aged 78) bought an AMP whole-of-life insurance policy due to end in 2039. The annual premium – $1040. New annual bonus – $1030. Death benefit – $87,470. Withdrawal benefit – $57,930. My parents are worried that with the AMP share price so low, it may be at risk. Should they continue with the plan, or exit and lend the money to my brother to pay down his mortgage? J.H.

AMP sold its life insurance business to global company Resolution Life in July 2020, so AMP’s share price is irrelevant to that business.

Those old whole-of-life policies were generally poor investments.

If your dad is healthy and does not expect a claim on his policy for some time, you could get a quote from Australian Policy Traders (I have no commercial arrangements with them), who buy such policies at a price higher than AMP’s surrender value.

Your parents could then lend the money at, say, the CBA fixed home loan rate of 2.64 per cent, which is more than the net return on the policy.

My wife and I, aged 73 and 77 respectively, are retired and have a combined $350,000 in Rest Super, from which we draw $20,500 a year. We have $50,000 in the bank. We own a three-bedroom apartment, valued at $2 million, and receive a part age pension of $36,093 a year. Our plan was to enjoy retirement and, when the need arose, downsize our home. We love our apartment but believe we could move into a similar two-bedroom apartment nearby, with about $350,000 left over. We would like to have access to those funds to be more generous to our family and ourselves. We are both in good health. Would the alternative of a reverse mortgage be worth considering? Where would we invest the $350,000, if we sold? S.P.

Being in good health, you could easily look forward to many more years above ground.

With your savings, perhaps you could be more generous to yourselves and budget, say, for another $1000 a month. You could do this for a decade or more while still staying in the home you love. Then, you might consider moving into a retirement home, while adding any leftover cash into super as a downsizer contribution.

Assuming a long life ahead of you, I suspect you don’t have enough money to be overly generous to others, and you are restricted by Centrelink’s gifting rules.

My brother-in-law is aged 35 and lives in a unit he purchased last year. It has a mortgage of $350,000. He and his brother each own half of an unencumbered house in which his brother and parents (who receive an age pension) live. What can my brother-in-law do to maximise his tax position? J.H.

He cannot transfer his home loan to his half ownership of the house, if that’s what you are thinking.

If your brother-in-law could sell some or all of his share in the house to his brother, he could then pay off his mortgage.

Of course, if the brother had to borrow the money, then he, in turn, would be stuck with a non-deductible home mortgage.

If the situation is desperate, the two siblings could consider selling the house and the brother could buy a smaller property for he and his parents.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

If you have a question for George Cochrane, send it to Personal Investment, PO Box 3001, Tamarama, NSW, 2026. Help lines: Australian Financial Complaints Authority, 1800 931 678; Centrelink pensions 13 23 00.