Sell Endowment to pay off loan?

Preserving_Anonimity

I've been asked by a collegue for some advice (I am a regular MSE visitor posting under a new name) but I am really out of my depth but I know that someone out here will be able to give me some help.

Should my collegue (MC) sell his endowment to pay off a loan?

After going through a separation/divorce, MC finds themself in a financial difficult position. He leaves the marriage in debt and not being able to afford to rent unless in a shared house which he really is too long in the tooth to do if at all possible.

There is a car loan of around £6500 at APR 19.6% with 2 years to run which could be settled this month at £5500. Monthly payments £240.

There is an endowment with Sun Life Canada which has 16 years left and is costing £50. For reasons which are irrelevant, it is accidently in arrears of around £300ish.
They will settle at £4100.

Cashing in the endowment will enable MC to pay off the loan and free up £290 per month enabling rent and other costs to be met in a (small) rented flat.

Is this a sensible move?
Where else should MC look if the endowment is to be cashed, could a better deal be struck elsewhere as opposed to just taking the offer from the provider?

Thanks

Preserving_Anonimity

Is there no-one out there better qualified to help?

Maybe I have posted on the wrong board - would the mortgages and endowment page be a better place?

tyllwyd

I think you would definitely be better to post on a board such as the investments or mortgages board.

If MC keeps the endowment, what does he plan to do with the money in 16 years time - I guess he has no property and will have no dependants that far in the future?

How long has he had the endowment - is it performing well?

Does he need the life insurance element provided by the endowment?

Is it with profits or not?

Does he have a pension or is he relying on the endowment for a lump sum in the future?

To me, it looks as if he needs the money more now than he will in 16 years time, but that's just a guess from the little you've said.

Preserving_Anonimity

tyllwyd wrote: »

I think you would definitely be better to post on a board such as the investments or mortgages board..

OK - perhaps a mod would be kind enough to do this for me.

If MC keeps the endowment, what does he plan to do with the money in 16 years time - I guess he has no property and will have no dependants that far in the future?
I don't think that he has any long term plans at the moment - breakdown came out of the blue. He hopes to be able to buy a property eventually - probably through some sort of shared-ownership scheme and there are currently no dependants.

How long has he had the endowment - is it performing well?
I think he said that it is currently projected to generate around £16000.
I'm guessing around 9 years.

Does he need the life insurance element provided by the endowment?
Not sure - presumably there are cheaper ways of insuring life than an endowment.

Is it with profits or not?
Don't know - will ask if it makes a big difference.

Does he have a pension or is he relying on the endowment for a lump sum in the future?
I suspect that he doesn't have a pension but is starting a new job in a bank so may have soon.

To me, it looks as if he needs the money more now than he will in 16 years time, but that's just a guess from the little you've said
That's what I thought.

Jenny2008

I can't help with what would make the most sense financially - to keep the endowment or cash it in.

But from an emotional point of view: it seems to me that if MC keeps the endowment it is just yet another thing to worry about. Where is the £50 a month going to come from that he needs to pay into it to keep it going? How are the arrears on the endowment going to get paid?

I imagine things are stressful enough at this stage in MC's life. If he can start his new life without debt and in his own little place, then potential earnings in 16 years time don't really seem worth it.

Besides, isn't he more likely to get into even more debt if he struggles to keep on his loan as well as pay into this endowment?

I know it's important to make sensible financial decisions, but sometimes emotional peace is worth a bit more.

tyllwyd

Preserving_Anonimity wrote: »

Is it with profits or not?
Don't know - will ask if it makes a big difference.

I'm no expert, but we had an endowment and it was part with-profts & part unit trust. We tried to find out about selling it, but no-one was interested because of the unit trust part.

If you want someone to move the thread, you might be best pm'ing one of the mods in case they don't notice it. Or it might be quicker just to start a new thread!

Assuming that it was a 25 year endowment, and he is paying £50 per month, then the premiums would be 25 x 12 x £50 = £15,000. If it is projected to mature at £16,000, that isn't a very impressive return!

If he has already put in 9 x 12 x £50 - £300 = £5100, then settling at £4100 means he's lost £1000 at this point.

Again, I'm no expert, but with the figures you've given, this isn't convincing me as a good investment!

Preserving_Anonimity

Thanks for all your comments - MC has decided that although it may not necessarily be the best decision long-term, it makes sense to clear the debt for a fresh start.