Endowment Policy - transfer the life assurance component?

Shazwellyn

Hi Everyone.

I was wondering whether it is possible to convert the life insurance component of a low cost endowment (unit trusts) to the main lump sum investment. :rolleyes: Excuse the pun, but if your mortgage liability reduces surely the life insurance component becomes 'dead money' :rotfl: because the aim is to pay off the morgage should you die. If you don't die, then the money is lost! Although if I was to die before the end of term, the extra money would come in handy to my loved ones, taking charge of paying off my interest only mortgage by stashing what I can with lump sums would decrease the need for this component of my policy. What I would like to do, is make good use of my policy and put all the monthly policy money into the kitty, so that at the end of term, the lump sum would have snowballed to a greater amount, without paying any more than my monthly premium. I know that endowments are frowned upon presently , I have been duly compensated with any mis selling on this front which has gone directly into the repayment pot of my property:T , but I feel that if you have a long term investment, you have to go with the rough and the smooth of any economy, hope for the best and plan for the worst. The stock market is not performing well presently, but has in the past and will get better in the future, so taking the average - the rough and the smooth - I don't regret taking these policies out because the end of the term hasn't happened yet for me! Although any investment can be thought of as a lottery, particularly if you are attempting to draw down a pension or endowment policy presently when stocks are performing so poorly, at this time, has just been unlucky for those people. My endowments will mature in 10 and 15 years. I want to use these policies as lump sum payouts as I am on track to pay off my main mortgage within the next 10 months! I want to maximise these payouts and boost them when I can to help with the snowball affect later. Does this make sense? This investment is supposed to really accummulate in the later stages, so I want to action them now to gain a greater reward later - maybe even add lump sums when stock market is down (they can only up). Using the life insurance component makes sense to me when I am so near to reaching my mortgage free goal. But is it possible?
Has anyone done it or knows of how this can be done?
Happy New Year Everyone!:beer:
Shaz:j

feisty1

So yr paying yr mortgage off in 10months time but keeping the endowments running purely as a savings vehicle. What other life insurance is in place other than that on the endowments once the mortgage is paid, are you the main bread winner, do have dependants? when do they finish full time education?

dunstonh

Is there are surrender penalty or not?

If there isnt then surrendering and using a S&S ISA would be far more efficient assuming you dont need the life assurance element. Or it may still be cheaper if you did the S&S ISA and a decreasing or level term assurance. You really need to cost the options out.

EdInvestor

You pay tax on gains up to 20% in an endowment, and also the life cover will now be reducndant.Better to surrender and start a stocks and shares ISA.But post some info just in case you have one of the very few endowments that are worth keeping.

Provider
Guaranteed sum assured
Declared bonuses
Surrender value
Monthly premium
Maturity date
Maturity forecasts

Shazwellyn

feisty1 wrote: »

So yr paying yr mortgage off in 10months time but keeping the endowments running purely as a savings vehicle. What other life insurance is in place other than that on the endowments once the mortgage is paid, are you the main bread winner, do have dependants? when do they finish full time education?

Yes endowments as savings vehicle.
Have legal and general life assurance @£11 a month
2 dependants finishing full time ed in 3/4 years
Single mother, main bread winner

Hope this helps you to help me!:A

Shazwellyn

EdInvestor wrote: »

You pay tax on gains up to 20% in an endowment, and also the life cover will now be reducndant

20% is steep! Is this staggered in any way? Would the capital gains tax be reduced if I designated them to, lets say, buy to let properties? Are there any loop holes in tax avoidance for capital gains? What about considering tax years? Why will my life cover be redundant? These endowments, surely, are running independantly of my main mortgage liability and should anything happen to me, they should pay out the guaranteed death benefit???
Does it also mean that the life cover component is non transferable?

The plot thickens eh? Love to hear from you soon,

Shaz:j

Shazwellyn

dunstonh wrote: »

Is there are surrender penalty or not?

If there isnt then surrendering and using a S&S ISA would be far more efficient assuming you dont need the life assurance element. Or it may still be cheaper if you did the S&S ISA and a decreasing or level term assurance. You really need to cost the options out.

With the stock market the way it is, to cash in now is the worse possible time when the market is at its weakest! Is there any way I can transfer the life assurance, so I am no longer covered for death, element of the policies to investment part of the endowment?

Thanks for your help

dunstonh

20% is steep! Is this staggered in any way?

Its up to 20%. Income within the investments has virtually the same taxation as unwrapped investments. Capital growth within the investments is subject to 20% tax but life companies still benefit from taper relief so in reality it tends to be closer to the 10% mark. Personal capital gains tax is 18% although you have a nil rate allowance you could use each year.

Would the capital gains tax be reduced if I designated them to, lets say, buy to let properties?

You dont pay capital gains tax on life funds. So it doesnt matter.

With the stock market the way it is, to cash in now is the worse possible time when the market is at its weakest!

Why? If you are going to put it straight back into an S&S ISA invested in the markets you get the same performance, possibly better given the diversification options available and you pay less tax.

Is there any way I can transfer the life assurance, so I am no longer covered for death, element of the policies to investment part of the endowment?

Not within the same plan. You would need to use a new one. Hence the S&S ISA or if that allowance is used, unit trusts/OEICs. You could consider making the plan paid up (no more monthly contributions). That can involved ceasing the life cover and can sometimes be the best option for the short term (if you are say 2 years away from a penalty free exit point). However, that too is one of the options that needs to be costed.

To put this a little more simply. You have two separate the investments and the tax wrapper. You have a tax wrapper that is currently an endowment. It utilises funds which invest in the stockmarket. You have other tax wrappers available such as pensions, ISAs, investment bonds etc all of which can utilise funds which invest in the stockmarket. You should use the tax wrapper that is best for your situation. The funds you get with the different options are largely the same and in many cases identical.

However, the snag on that is charges. There is no point using an ISA that may be more tax efficient than the endowment but then costs you more to switch into than the tax you would save. Hence why the options need to be costed out. Its easy thing for an IFA to do but it does require knowledge of the taxation, charges and options if you want to do it yourself