Endowment policy query

The_JinJ

Hi all

I'm helping out a friend sort her finances - she has a Prudential endowment policy alongside her mortgage and just want to make sure it looks ok to the more informed on here

The monthly payment seems high but after reading about bonuses etc I'm not sure....

Prudential Home Purchaser Plan
Unitised with profits

Start date: 03/07/2000
Date of maturity: 03/07/25
Target amount: £24250
Min death benefit: £24250

Basic units (31/12/2007): 3010.179
Previous bonus units: 219.443
New bonus units: 93.228
Total with profits value (31/12/07): £3322.85

Current rates of bonus are 3.25% on basic units and 3.25% on existing bonus units

Projected final amount:
4%: £19400
6%: £25200
8%: 32700

Her current monthly payment is £86.15 but looks like she paid £45.40 monthly in the past (she is unsure when this changed to the higher amount) - she doesn't have access to previous paperwork apart from a few yearly statements, a few updates and the initial plan outline.

Based on the premium she pays does this look reasonable? I'm concerned that she is paying almost double but has the same target amount as before (or is it normal for payments to vary?)

Any help with this much appreciated

dunstonh

Target amount: £24250
..snip...
6%: £25200
8%: 32700

So, that puts it above target. I got some Pru updates the other day which showed the Pru plans in Sept had improved their projections at all three levels between June and Sept. That indicates that returns are above that shown on the higher illustration.

I'm concerned that she is paying almost double but has the same target amount as before (or is it normal for payments to vary?)

She had a low start, low cost endowment. This means the payments are lower in the first 5 years (typically half the normal amount) but increase each year year 6 where they level out.

The_JinJ

Cheers for that - much appreciated
Starting to make sense now!

At present she has paid in
£45.40 x 5 years = £2724
£86.15 x 20 years = £20676
Total paid = £23400 + % + bonuses

So the final payout will be made up of £23400 + % + bonuses?

Not sure how the calculation works with, for example, the 8% to reach the £32700 figure

dunstonh

It doesnt work by what is paid. its worked by the value of the units on maturity and the additional of a potential terminal/final bonus. This final bonus can accrue over the years but is only guaranteed once the policy matures. the final bonus though is where the bulk of the return is likely to be.

The only guaranteed bit is the number of units multiplied by the unit price