Endowment - Terminal Bonus

Supernova · 5 April 2006 at 4:07PM

Hi,

I have a Friends Provident With Profits Endowment sold in March 1988 for £56K due to mature in Sep 2012.

The current projection is for a shortfall of between £9K and £19K, the guarantee is for £32K.

An IFA told me last week that it is possible that the terminal bonus will actually pay off the mortgage. Can anyone advise what factors might determine how much the terminal bonus is likely to be?

TIA

M

ReportInvestor · 5 April 2006 at 5:11PM

Hi Mus,

Some of the factors affecting the payment - or not - of a terminal bonus include:

The bonus policy of FP - does it favour annual or terminal bonuses.
The investment mix of the FP with profits fund.
The market performance of those investments between now and 2012.
The extent to which FP has been overbonussing to date, if, indeed, it has been at all.

"We see into a glass, darkly." - It might have been written about with profits.

"And pigs might fly" would have been my personal reply to your IFA.

If he checks his tables, he will see that Friends Provident 25 year full cost with profits endowments are languishing at the bottom of payouts to December 2005.

For £500 pa invested for a male non-smoker aged 30.

FP £33,834
Average £48,159
Liverpool Victoria £64,014

Sorry to be the bearer of bad tidings

. Terminal bonuses are of the non-guaranteed type.

Supernova · 6 April 2006 at 9:58AM

RI,

OK, thanks for the reality check... :-(

Bonuses so far are £11k plus the sum assured of £21K, premiums are £100 pm - I guess I just have to sit with it, but I don't know how to make up the shortfall. It was sold through an IFA so no chance of compensation.

Do you have a source for checking on those performance figures?

I happened across a site called EndowmentCheck.com yesterday which purports to check on Endowment performance - is that just a front for making some money, getting your details and offering to sell your Endowment for you?

Thanks

M

ReportInvestor · 6 April 2006 at 10:51AM

Money£acts Life & Pensions is my source for the "performance". An IFA should have access to that.

dunstonh · 6 April 2006 at 11:58AM

If the IFA has done a full and proper analysis, then there could be information present which we are not aware of. However, if FP havent been written to and its a quick and dirty check, then I would not rely on the FP terminal bonus improving significantly. It should improve, more than the annual bonus will, but not by any large amount.

EdInvestor · 6 April 2006 at 1:46PM

Mus

What is the surrender value?

Supernova · 6 April 2006 at 5:05PM

Ed,

Surrender value £23K.

The IFA I spoke to had no special knowledge of the policy, it was just an initial meet to look at my general financial situation.

Cheers

M

EdInvestor · 6 April 2006 at 6:16PM

Mus wrote:

I have a Friends Provident With Profits Endowment sold in March 1988 for £56K due to mature in Sep 2012.The current projection is for a shortfall of between £9K and £19K, the guarantee is for £32K.

An IFA told me last week that it is possible that the terminal bonus will actually pay off the mortgage. Can anyone advise what factors might determine how much the terminal bonus is likely to be?

The FP fund has ticked up a bit lately, but I would still think it unlikely to make more than 4% or a bit more over the time.

If you surrendered the policy and put the money on deposit @ 4% until maturity also paying in the premiums, you should end up with 37,233 compared with a guaranteed value of 32,000.

The endowment would pay out less than that, as charges and the cost of life cover would be deducted but as you can see there would be a termninal bonus in there on top of the guaranteed value. But it would be small - you would still have quite a large shortfall.

I would suggest you surrender this policy,use the proceeds to reduce the mortgage, while also switching over to a repayment one and using the endowment premiums to increase the monthly mortgage payment. If you need to replace the life cover do it before you surrender the endowment.

You might need to raise the mortgage premiums or extend the term, but if you can get a decent interest rate, it might not cost you too much more.

dunstonh · 6 April 2006 at 9:39PM

The IFA I spoke to had no special knowledge of the policy, it was just an initial meet to look at my general financial situation.

So it was a quick and dirty opinion based on an assumption with no facts. Much as we are all making on this thread (and many others).

Unless the insurer has been contacted to supply factual data, then any opinion offered by anyone (professional or otherwise) is not really worth a lot and I wouldnt want to make a financial opinion based on guesswork.

Supernova · 7 April 2006 at 12:13PM

Thanks guys. Food for thought.

Supernova · 16 August 2006 at 10:46AM

EdInvestor wrote:

If you surrendered the policy and put the money on deposit @ 4% until maturity also paying in the premiums, you should end up with 37,233 compared with a guaranteed value of 32,000.

Sorry to dig this up but does that figure take into account 40% tax or can I reduce that somehow?

Ta

Endowment - Terminal Bonus

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