Cash in the insurance policy if you want to buy, says Kevin O'Connor

WHAT WAS that insurance policy for? Retirement, rainy day - or merely a good idea at the time? Well, we've had the rainy days and retirement, for most, is another day's work.

A good idea at the time? Yes, certainly. But with the dramatic fall in values of gilts, pension funds and banks, all heavily invested in by insurance companies, what you will get back in maturity may not be worth the wait of a few years.

Calculated another way, the promised cash "bonus" of waiting for full maturity may turn out to be a financial mirage.

Certainly, it will be much reduced from company projections of a few years ago.

The time for encashment may be - now. Especially if your policy was taken out more than five years ago and forgotten about.

It's money lying in the loft, so to speak, and it is worth getting an update on its value.

That worth is likely to have increased only marginally this year, will not pay a worthwhile bonus or dividend next year and will be substantially short of its promised value trajectory of the previous five, 10 or 15 years.

That's my reasoning, brought on by a few factors which have meshed in the last few weeks, to make one consider partial or whole encashment of policies.

The most serious factor has been the credit squeeze of the past few months, which became scrotum-tightening this week, in the wake of banking collapses in the US.

But for those with a weather-vane, the signs were already on the horizon.

As far back as last autumn, Irish lenders were rapidly reducing advances, from around 80 per cent to 60 per cent, as the US subprime crisis made them nervous of their exposure to property lending.

The 100 per cent mortgage is now probably a dinosaur of lending history, unlikely to be revived except in textbooks charting how banks lost sight of a one-time banking virtue, known as prudence.

Not for nothing is 'prudence' used in the name of one of the great UK insurance companies, which has so far weathered the storm. But even insurance companies may be about to have a run on their monies, if investors and potential buyers are forced to look to their policies to raise the extra cash required to complete purchases. Because, with property prices plummeting, bargains are out there.

The problem for many would-be buyers is that lenders are nervous. Perversely, even as property becomes cheaper, money is harder to find, and then only at higher rates over longer terms.

The lenders clearly see, for all their public denials, that plummeting prices, while representing a bargain for many, grossly threatens their securitisations.

As one said most simply and accurately this week, American banks had lent massive amounts, on the assumption that property values would continue their upward graph, indefinitely.

By definition, nothing is indefinite. We and our built environment is as finite as, say, our mortality. The problem is, we know not the day nor the hour, of our economic system as our life-span. This week, one has come crashing down, bringing with it the value of insurance policies.

This provokes the compelling reason to dig out that policy and look at how much it may be worth. Whatever its stated value, it is unlikely to have appreciably increased this month, or next year, or the year after.

The financial markets upon which it based projected returns have lost about 50 per cent this year, with a further fall this week of another 10 per cent.

Yet if it is more than, say, five years old and is cashed now, the sum already guaranteed intact could make the difference between buying a property over the next few months or not.

It is not rocket-science and you would not be the first to use your policy as a war-chest for purchase.

Or, indeed, as a policy for the rainy day, which has surely come.