Endowments - any ideas what to do?

jayencee

Hi, I'm new to this board and have been following recent postings. Can anyone give me some thoughts on what to do with the following 4 policies? Is it worth keeping them to maturity and convering the shortfall to a repayment mortgage, or cash them in now? Hope I've given enough information.

Standard Life
Start Date: 7.3.96
Maturity Date: 7.3.2021
Monthly premium: £65.94
Total fund as at 7.3.08 = £9912.60 plus final bonus of £1860.84 (not guaranteed)
Was intended to cover a mortgage of £42354 but the predictions are:
Low: £26400
Intermediate: £31800
High: £38100
Surrender Value: £10831.15

Legal and General
Start Date: 6.4.88
Maturity Date: 6.4.2013
Monthly preimum: £32.90
Last annual bonus (31.12.07) £174.20
Total bonuses: £5846.10
Basic Sum Assured: £8262.00
Surrender Value: £14476.20

The above two are assigned to an interest only mortgage, rate of 2.47% running until 7.3.21, both policies are on red alert. Tied in to tracker until January 2010.

Legal & General
Start Date: 6.4.88
Maturity date:6.4.2013
Monthly premium: £33.71
Last annual bonus (31.12.07) £174.20
Total bonuses: £5846.10
Basic Sum Assured £8262.00
Surrender Value: £14476.20


Standard Life
Start Date: 6.3.96
Maturity Date:6.3.13
Monthly Premium:£91.08
Total Fund as at 7.3.08 £12447.18 plus final bonus of £2236.01
Was intended to cover a mortgage of £27000, but predictions are:
low: £21100
Intermediate: £22800
High: £24500
Surrender Value: £13614.43

The second two policies also on red alert, are assigned to a buy to let mortgage, current rate 5.92% expires in April 2013. No tie in, currently on SVR. Property worth approx £130,000 given current falls, and current mortgage is for £54000.

Thanks to anybody who takes the time to read through this!

EdInvestor

There is unlikely to be any advantage in surrendering any of the policies and using them to pay off the residential mortgage because it is on such a low rate.

There might be an advantage in using the money to pay off the BTL mortgage, but you may possibly want to keep that fairly modest mortgage for tax reasons?

Thus the issue could boil down to what else you would do with the money if you surrendered.

If you wished to save it, rates are currently very low so little advantage. If you wished to invest it, you could certainly consider surrendering and reinvesting the money in stocks and shares ISAs, where you would pay no tax, and lower charges. The allowance per person is 7.2k a year.

Let us know your preferred option and then a calculation could be done.

jayencee

Thanks for the quick response.

You're right, it would not be tax efficient to use the money to pay off the buy to let mortgage (which I am thinking of changing to a repayment anyway and remortgaging to the max I can get for tax purposes). If surrendered, would use the money to help daughter through university (start date sept 2010), and possibly, depending on which uni she eventually goes to, buy another buy to let property in her uni area, in order for her to have somewhere to live in her second and third years.

EdInvestor

jayencee wrote: »

If surrendered, would use the money to help daughter through university (start date sept 2010), and possibly, depending on which uni she eventually goes to, buy another buy to let property in her uni area, in order for her to have somewhere to live in her second and third years.

So would you put the money in a savings account or invest it?

Gorgeous_George

EdInvestor wrote: »

There is unlikely to be any advantage in surrendering any of the policies and using them to pay off the residential mortgage because it is on such a low rate.

Except the value of the policies could fall or may not rise by as much as the contributions.

EdInvestor wrote: »

There might be an advantage in using the money to pay off the BTL mortgage, but you may possibly want to keep that fairly modest mortgage for tax reasons?

The tax issue is a red herring. Pay the BTL mortgage off and claim the residential mortgage interest against tax. It is the purpose of the loan and not the house on which it is secured. Check with an accountant or the tax office.

EdInvestor wrote: »

Thus the issue could boil down to what else you would do with the money if you surrendered.

If you wished to save it, rates are currently very low so little advantage. If you wished to invest it, you could certainly consider surrendering and reinvesting the money in stocks and shares ISAs, where you would pay no tax, and lower charges. The allowance per person is 7.2k a year.

Let us know your preferred option and then a calculation could be done.

Investing it under the mattress may prove more successful than keeping the endowments IMHO.

GG

jayencee

I wouldn't need to get at the money (other than if I were to pay off one of the mortgages) until August/Sept 2010 when I could then possibly use it to invest in another property to help daughter through Uni as she would save on rent.

Just wondered if I was throwing good money after bad in keeping the endowments running and if I could get more use from the money by taking it now.

Dick_here

I wouldn't keep an endowment that runs until 2020 or beyond. There is an awful lot of money to be thrown at it, bearing in mind how endowments seem to be going these days it's a risk I wouldn't be comfortable with.

grumpynotoldman

My wife and I are in a very similar boat.
3 Friends Provident With Profits policies.
No one's friend, not provident and absolutely no profit.
Final bonuses have dropped to 5%.
FP website dated 9th Jan 2009.

One is due to mature in August 09.
Death cover £21,150,00p
Sum Assured £7,437.00p
Surrender value £14,541.00p
Premiums £30.42p. p/month so £251.46p to pay.

2nd is due to mature August 2010
Death Cover £8250.00p
Sum Assured £2,970.00p
Surrender Value £4882.00p
Premiums: 20 more to go at £12.30p so £246.00p to pay.

3rd due to mature July 2011
Death Cover £21,150.00p
Sum Assured £15,840.00p
Surrender Value £17,205.00p
Premiums: 31 to go at £71.20 so costing £2,207.20p

Total value today £36,628.00p
Premiums to pay£2,704.30p
Projected value @4% ( they made a 10% net loss this last year, hence final bonus crash) £41,267.00p

Jam today,? Jam and bread tomorrow??, or bread and dripping?

This was supposed to pay off a £60K mortgage, but we went part and part 5 years ago, and have paid the £50k interest only bit with part of my (early retirement special MHO status NHS) pension, this month.:j

Our worry is that the final bonuses will dry up alltogether or go negative.
Can they do that?
What about this MVR thing does that apply too? It looks like a penalty for bailing out of their crashing aircraft.:eek:

Any insights gratefully received!
Endowmentcheck calculator hadn't picked up on Final bonus change yesterday. Announced on Jan 9th
FP website has letter templates all set up to surrender.
Looks fishy to me, but then what do I know?
I bought 3 endowments!:o