Posts Tagged ‘money’

Graphing the AXA Sun Life Guaranteed Over 50 Plan

Friday, August 22nd, 2008

On TV recently I’ve been bombarded by adverts about the AXA Sun Life Guaranteed Over 50 Plan. The current version of the advert is presented by Michael Parkinson. Previous versions have been presented by June Whitfield.

I am no way near the age of 50 and these plans have no relevance to me. I should also point out that I am not a financial advisor, and am not intending to offer any opinion on these plans. My interest is to look at them from a simple mathematical point of view.

In case you’ve missed the advert the basic idea is this. If you are over 50 you can pay AXA a fixed monthly sum for the rest of your life. When you die a fixed sum (fixed at the time you open the plan) is payable to your family. If you die within two years you don’t get the fixed sum, but your family do get 1.5x your premiums back. If you ever stop contributing you don’t get anything.

I went on their website and got a quote for a 60 year old male paying in £6 per month (the minimum a 60 year old male can pay in on the day I got the quote). This produces a cash lump sum of £760, payable on death after 2 years.

Here is a graph plotting how much you pay in, against how much you get back. You can see there is a cross-over point at which you end up paying in more money than you get back. In this case you end up having paid in more then you’d get out when you reach 71 years old.

axa sun life over 50 plan graph

The government publish data on life expectancy. I got the latest male life expectancy data from 2004 and 2006 and plotted this into another graph. Note how your life expectancy goes up as you get older. This is because you have already managed to avoid dying in the preceding years.

uk life expectancy

You might not be able to make out the detail on the graph but the life expectance for a 60 year old male in the UK is 80.81 years.

This means that if you are an average person you are likely to be paying in 9 years of premiums beyond the lump sum value that you would get back.

However calculating the benefit of these plans isn’t quite as simple as this – they often provide extra benefits such as extra payouts in the event of dying in an accident or whilst travelling.

An obvious factor to look into is the effects of compound interest when adding the same amount (£6) into a bank savings account every month.

compound interest graph on a monthly saving of £6 at 4%

This graph is showing the effect of saving £6 a month based on a modest 4% gross interest rate. I based the calculations to produce this graph on the formula given on patrick schneider blog post. The final figure after 40 years matches the figure given by other compound interest monthly savings calculators I’ve seen on the internet so hopefully the graph is accurate!

Below I’ve put the compound interest curve on top of the previous graph comparing contributions against the cash lump sum.

compound interest graph on a monthly saving of £6 at 4% compared against AXA Sun Life Plan with £6 per month contribution

There are further complications to consider such as the effect of inflation. The real worth of any money your family would get back when using these plans is reduced every year due to inflation. On the other hand the real world cost to you goes down each year as your £6 per month will gradually constitute a smaller percentage of your income.

What are my conclusions? I’m not giving you any! Any decision on whether to use a financial product should be taken based on your personal financial circumstances and with the help of a trained financial advisor (which I’m not).

I would say that these are the kind of analyses you should be doing when investigating or comparing any kind of financial product, whether it be a savings account, loan or mortgage. Turning financial information into simple graphs is a very powerful tool that can save you a lot of money!

Tips and advice for buying windows

Friday, March 21st, 2008

After recently buying some windows myself here are some tips that I have put together. This advice is aimed at people living in Britain but much of it applies for where ever you may live.

1. If you can, inspect windows previously installed by the company. The window company may be able to provide addresses of people whose windows you can view. Make sure you are satisfied with the way they look from both the inside and outside. If you can’t arrange to see actual windows then ask to see detailed photographs or a brochure of their work. Try to agree with the company (in writing) that your windows will look as good as the ones you see – they are bound to show you the best ones!

2. As well as inspecting the windows you should ensure you are happy with the mechanical operation of the windows. Try opening all the different types of windows (e.g. if there are large and small windows open both of them) and testing any handles or locks.

3. Check what guarantee the company offers. A guarantee is legally binding and provides rights in addition to your statutory rights. Check if the guarantee is “insurance backed”. This will protect you if the window company goes out of business. Make sure that you get the guarantee in writing.

4. The language used on quotes is often quite technical. Ask for explanations of any technical terms that you don’t understand.

5. Check if the quote includes repairs to the window-sill and repairing / repainting any damaged areas of the window frames. If your TV aerial is routed through the windows make sure that they can take it into account.

6. If you are going for double glazing find out how easy it is to replace the double glazed sealed units. They have a limited lifetime (often 5-10 years) after which the seal may fail and condensation may build up inside.

7. Get multiple quotes – if possible contact a minimum of three companies and compare the quotes.

8. Try to pay only a small deposit. Ideally paying as much as you can after the work has been completed. This will give you more bargaining power if there are problems with the windows. For example, if there are problem you may be able to withhold some of the balance until the problem is fixed. The Trading Standards web site explains how you can do this.

9. Before handing over the final balance inspect and test all your windows. If you can avoid having to pay too soon after the windows are completed, you may get lucky and be able to see how your windows perform during wind and rain.

10. Ask the company what problems previous customers have had with their windows and how they dealt with them. Ask if they can give you details of previous customers that you can contact for references. Be aware that they are likely to give you details of happy customers.

11. If you run into problems then there is legislation protecting you such as:

  1. Sale of Goods Act 1979
  2. Supply of Goods and Services Act 1982
  3. Sale and Supply of Goods to Consumers Regulations 2002

12. Further advice can be found at:

  1. http://www.tradingstandards.gov.uk
  2. http://www.consumerdirect.gov.uk
  3. http://www.adviceguide.org.uk (Citizens Advice Bureau)

You may wonder if it is worth going through all these steps. Think about how much the windows will cost. Replacing a number of windows could end up costing as much as a small car (or maybe a bigger car depending on how many get replaced). Would you buy a car without thoroughly researching it, reading the brochure and taking it for a test drive?