HSBC Life Endowment - cash in or stick?

BlondeHeadOn

!!!!!!_here wrote: »

If you continue this policy you'll be paying over £27k if kept until maturity. I'll say no more.

I know, that's what I worked out! That's the reason I am tempted to cash it in and pay off some more of the mortgage balance with it. I reckong we could pay off the mortgage in about 5 years if we did that, as it would leave us with only c. £25,000 left on the mortgage.

On the down side, we would lose the CI cover (and not be able to get anything as good again, probably), and would have to get some more life cover for the £25k.

As it stands at the moment we are on target to pay off the mortgage by about 2015 anyway, so the endowment part will just be a bonus when we get it. Not sure how much of a bonus though, depedning on how well it performs.

I must admit I was expecting everyone to just say "cash it! cash it!" as the premiums are so high and the projections so bad - I am very surprised to have so many responses seeing the positive aspects of the policy. Definitely given me food for thought!

dunstonh

The premiums include cost of life cover and critical illness. What is the cost of replacing that? Once you know that, you can then multiply the difference over the remaining term.

The problem with yours is that its unit linked. That would means it low in value now because of market events but buying units cheap. Yours has the potential for double digit returns and access to a range of unit linked funds which may be cheap. Without a proper analysis its hard to say. Dont expect to get advice from HSBC to cancel it. Employers dont like their staff recommending cancellation and many dont allow their staff to do that Also, most salesforces are not authorised to give portfolio advice. This is why you so often end up in the default managed fund.

The projections assume a straight line return of 4,6 & 8% a year, every year with no difference. That isnt how investments work. It may well be worth surrendering before the term but with the market as it is, it may be worth keeping for the moment.

There are really too many variables to say

BlondeHeadOn

dunstonh wrote: »

The premiums include cost of life cover and critical illness. What is the cost of replacing that? Once you know that, you can then multiply the difference over the remaining term.

The problem with yours is that its unit linked. That would means it low in value now because of market events but buying units cheap. Yours has the potential for double digit returns and access to a range of unit linked funds which may be cheap. Without a proper analysis its hard to say. Dont expect to get advice from HSBC to cancel it. Employers dont like their staff recommending cancellation and many dont allow their staff to do that Also, most salesforces are not authorised to give portfolio advice. This is why you so often end up in the default managed fund.

The projections assume a straight line return of 4,6 & 8% a year, every year with no difference. That isnt how investments work. It may well be worth surrendering before the term but with the market as it is, it may be worth keeping for the moment.

There are really too many variables to say

Thanks for this, I think you have convinced me that I may be acting too hastily in thinking of cashing it in. I have been lured by the possibility of having a £25k mortgage, but I accept that this may not be the best long-term decision.

My natural inclination is to wait and see, so I think I will accept that this is the best policy at the moment.

Thank you again to all who posted - you made me stop and think!
:T

EdInvestor

BlondeHeadOn wrote: »

Thanks for this, I think you have convinced me that I may be acting too hastily in thinking of cashing it in. I have been lured by the possibility of having a £25k mortgage, but I accept that this may not be the best long-term decision.

You need to investigate the CI replacement question if you want to make a decision based on facts rather than inclination.

dunstonh

This still isnt classed as a keeper or a dumper (couldnt think of anything better for that bit )

Paying the surrender value off the mortgage gives you certainty. Keeping the investment running involves risk. It may be better to wait until the market is higher and then pay off the mortgage later on. It may be worth keeping it until maturity.

Finding the cost of replacement life and CI cover will give you an idea of the cost difference. As to whether you wait until later is very much a personal decision based on your risk profile and opinion. Do you think the markets will be higher in a couple of years time and worth waiting until then or do you go with the security option now?

Advice is not very often clear cut but a judgement call based on things you dont know. Sometimes you will be right, sometimes wrong but understanding the options and making a judgement call knowing the pros and cons at least means you go into it with your eyes open. That is all you can do with this.

Had it been a zombie WP fund with a closed insurer then the decision is often easy. The fact its unit linked and will follow the investments its in (up and down) makes it a bit harder.

BlondeHeadOn

EdInvestor wrote: »

You need to investigate the CI replacement question if you want to make a decision based on facts rather than inclination.

I have just phoned moneysupermarket.com and got a quote for the life and CI policy replacement, and the best one is £71.35 per month. I'm waiting for the details to be emailed to me so I can compare the CI with the one we have with HSBC Life, but to be honest that's a lower premium than I was expecting (given as OH will be 60 in a couple of months). Mind you, the mortgage balance is a lot lower now as well.

Hmmm. I'm unsure again now!

EdInvestor

BlondeHeadOn wrote: »

Projected final amounts:
at 4% = £16,788
at 6% = £24,180
at 8% = £33,482

Ok, if you surrendered this policy and used the lump sum to reduce the mortgage and then divided the premium so that 71 pounds went to the new CI/life policy and 118 pounds was used to overpay the mortgage every month, then at maturity your return would be 42,220.

They would appear to be charging you an enormous amount for the insurance.

BlondeHeadOn

EdInvestor wrote: »

Ok, if you surrendered this policy and used the lump sum to reduce the mortgage and then divided the premium so that 71 pounds went to the new CI/life policy and 118 pounds was used to overpay the mortgage every month, then at maturity your return would be 42,220.

They would appear to be charging you an enormous amount for the insurance.

I don't quite understand the figures here (but I could just be being thick).

The current CI, Life and endowment policy combined payment is £188, on a mortgage value of £69k.

The replacement CI & life policy would be for a £25k mortgage only, and for a term of 10 years (we can overpay the £25k mortgage by about £500 per month, so are aiming to pay it off before the 10 years (and the policy apparently can be cancelled at any time without charge). I didn't think this was an endowment, just the insurance cover (or have I misunderstood this?)

Where does the £42,220 come from? I'm confused....

EdInvestor

Ask them how much of your mortgage payment is used to pay for the life/CI cover.

jm28cardiff

EdInvestor wrote: »

Ask them how much of your mortgage payment is used to pay for the life/CI cover.

The unit statements should show the number of units cashed in to cover fees and charges overall, but I dont know that the specific life/CI cover costs could be isolated, they would vary all the time depending on the difference between the value of the units and the target value???