Endowment surrender value dropping - sell or not?

ShortFatBloke

Or why didnt you surrender back in 2001-2002 when the stockmarkets dropped by more than they did this time round?

What is the motive for you wanting (considering) to cash it in?

I was made redundant in June and so did a quick overview of finances including how much we would get for the endowment if we needed the cash - thankfully I found a new job fairly quickly and so didn't need to do anything. However, we did realise what a poor return the endowment was and wondered whether we would be better off selling it and putting the cash into an account.

The majority of financial websites forums are suggesting selling.

Do you think things are going to turn around in a year, 2, maybe 3 years?

You can get 6.5% in the bank, save yourself the premiums as you say.

If it were me I would go for the safe, though irritating considering the 3K lost from last year, option.

My bold - no idea, if I knew that...:cool: Would the 6.5% in the bank make up for the lost £3k? The endowment has been making about 2% a year - I read the thread that you linked to above and although I don't claim to have understood all of it, I do realise that the money would have been better off invested in a high interest account for the last 20 years.

EdInvestor - will do when I get home from work

Gorgeous_George

ShortFatBloke wrote: »

The surrender value in July this year was about £23.5k, the surrender value today is £20.4k.

lisyloo wrote: »

What type of endowment is it?
Is it "with profits"...?

Maybe it's "with losses"?

For goodness sake peeps, get rid of your endowment policies now. You don't want to be the last to exit when the 'real' recession bites into the 'real' economy.

GG

ShortFatBloke

EdInvestor wrote: »

Post some info about the policy

Guaranteed sum assured
Declared bonuses
Surrender value
Monthly premium
Maturity date
maturity forecasts
interest rate payable on mortgage (doesn't matter if the two are no longer connected)

Guaranteed sum assured - £40,000
Basic Sum Assured - £12,240
Declared bonuses - £8011.46
Surrender value - £20,456.30
Monthly premium - £55.40
Maturity date - Jul 2013
maturity forecasts - 4% - £31,600; 6% - £34.400; 8% - 37,400
interest rate payable on mortgage 5.35% BTL fixed to May 2012

Dick_here

ShortFatBloke wrote: »

Guaranteed sum assured - £40,000
Basic Sum Assured - £12,240
Declared bonuses - £8011.46
Surrender value - £20,456.30
Monthly premium - £55.40
Maturity date - Jul 2013
maturity forecasts - 4% - £31,600; 6% - £34.400; 8% - 37,400

I'd have thought that this was one to stick with for the time being, but keep a close eye on it of course.

You've got just over £3k left to pay in premiums, and if the middle projection is somewhere close to reality then you'll get £11k more than that back as well as 5 years more life cover, when compared to taking the £20k now.

With bonuses likely to decrease you may well end up short of £34k, but I'd be amazed if you didn't get more than the current surrender value + 5 years' premiums by sticking with it.

EdInvestor

ShortFatBloke wrote: »

maturity forecasts - 4% - £31,600; 6% - £34.400; 8% - 37,400

If you cashed this one in now and used the lump sum to reduce the mortgage, and the premium to increase the mortgage payments to maturity, you would end up with a risk free return of 30,324, lower than their lowest forecast.

There's not really a clear cut choice here IMHO.There is still a risk premium left in this policy, though it's pathetically small compared with what you will have been led to expect.Five years is long enough for markets to recover the current damage, though you will probably see further falls in the TB for a while. On the risk front, the policy is gauarnteed to pay out at least 20k, so you are not totally exposed to markets.Tax and life cover considerations may be relevant.

If I were a cautious investor and had no need for a lump sum I'd probably hold this policy for the moment and then monitor it closely in the year running up to maturity so as to seek the optimal time to go.

ShortFatBloke

!!!!!! Here and EdInvestor - thank you so much for your advice, one less thing to worry about!

Ed_Zep

If you do decide to stop the endowment, please looking into selling it, rather than surrendering it. It's possible you could get more.

There are plenty of brokers that buy them. One website will let you put your details in and do all the phoning of the brokers for you.

That's what I did earlier this year and am glad I did but everyone's situation is different.

EdInvestor

Worth getting a quote: if they offer a decent premium it means they see value in the policy so it's a second check.

https://www.apmm.org

mic200202

I would hold on to this.The average annual bonus has worked out at 5.85% over the last 7 years.Dont forget, than while the policy isn't directly invested in shares, your contributions at the moment are buying units at a good rate (ie buying in when they are cheaper). These policies also have a final bonus applied at maturity (previously called Terminal bonus) which will obviously not show up on any surrender value figures.They are not designed to be cashed in early. From what I know, most L&G with profits have done quite well over 25 yrs. Once the policy as run 7.5 yrs there isn't any tax liabilities to worry about. It also has £40k of life cover in there which you lose if coming out early.

EdInvestor

mic200202 wrote: »

These policies also have a final bonus applied at maturity (previously called Terminal bonus) which will obviously not show up on any surrender value figures.

This is not correct.The surrender value includes accumulated terminal bonus. The main question is whether or not this will increase by maturity or actually fall. At present it is falling and that's likely to be the case for quite a while.

A further issue at some companies is MVR exit penalties, which can be as high as 22%.In these cases you are effetcively trapped, at least until the markets recover. If this happens to you, a valuable lesson about the potential risks of investing in With profits funds will have been learned, at least..