Newbie: Would welcome advise on this endowment policy

BigLad_2

Hi DunstonH & Ed,

Got the figures as you requested. Any opinions would be appreciated.

As of 3/2/09 current valuation of the policy is £ 6,937.02

Illustrative future benefits are:
Future rate of return 4% = £ 13,000 at maturity
Future rate of return 6% = £ 15,300 at maturity
Future rate of return 8% = £ 18,000 at maturity

I've already paid £ 8,168-60 in premiums to give me policy currently worth only 6,937.02. I'm a layman but surely this suggest I'd have been better off just putting that money in an interest bearing account...

Dunstonh - you were correct. Apparently I am presently in the Managed Investment fund but can switch to any of these others by writing in:

MANIF - Managed Investment Fund
BALAN - Balanced
CASHF - Cash fund
CEGRO - Continental Europe
EXINC - Extra Income
FIXIN - Fixed income
GGROW - German Growth
INCOM - Income
JGROW - Japan Growth
NAGEN - North American & General
NASCR - North American Smaller Companies
PBASI - Pacific Basin
PRPTY - Property
SCREC - Smaller Companies & Recovery
UKGRO - UK Growth
WWGRO - Worldwide Growth

I'm considering surrendering the policy to pay off some credit cards but would appreciate your opinions.

Thanks in advance for your assistance.

Regards

Jon.

BigLad_2

Not sure whether this is allowed but ....Bump :-)

I have an IFA calling round tomorrow and would appreciate opinions..

Cheers

Jon.

EdInvestor

BigLad wrote: »

Illustrative future benefits are:
Future rate of return 4% = £ 13,000 at maturity
Future rate of return 6% = £ 15,300 at maturity
Future rate of return 8% = £ 18,000 at maturity

If you cashed in this policy and used the lump sum to reduce the mortgage, also increasing the mortgage payment by the amount of the endowment premium, your return at maturity would be 18,611, which is higher than any of their projections, although you would be taking no risk.

This suggest you are paying a lot for the insurance.Do you really need it, and if so, have you checked whether you could get it cheaper elsewhere (very likely).

If you decide to dump the endowment, what interest rate are you paying on the Lloyds loan? If more than the mortgage, it may be best to aim at paying that loan off first using the lump sum and increasing the payments, and then when you have done that, increase the mortgage payment by both the endowment premium and the loan payment amounts.That way you overpay the mortgage and bring it down more quickly, also paying less interest in the long term.

BigLad_2

Hi Ed,

Many thanks for taking the time to do the calculations - I appreciate it.

I believe the Lloyds loan is at 7.9% but will confirm tomorrow.

One more question - Lloyds / Scottish Widows give a current valuation of £ 6,937.02. Am I likely to get a better valuation fro one of those companies that purchases endowments?

Cheers

Jon.

dunstonh

If you cashed in this policy and used the lump sum to reduce the mortgage, also increasing the mortgage payment by the amount of the endowment premium, your return at maturity would be 18,611, which is higher than any of their projections, although you would be taking no risk.

Although doesnt consider any cost of replacement life cover or critical illness cover or the fact you have some pretty good internal investment funds which will be available to you for investment purposes cheap.

One more question - Lloyds / Scottish Widows give a current valuation of £ 6,937.02. Am I likely to get a better valuation fro one of those companies that purchases endowments?

No. It has a daily value and all your funds are available on the open market. So, if I wanted xyz number of units in the fund I would buy them at normal retail price. No need to pay you any more.

BigLad_2

dunstonh wrote: »

Although doesnt consider ...the fact you have some pretty good internal investment funds which will be available to you for investment purposes cheap..

Thanks for your input DunstonH. But I'm afraid I don't understand this. Do you mean the other funds that I could switch to other than the managed fund I'm in?

Cheers

Jon.

dunstonh

BigLad wrote: »

Thanks for your input DunstonH. But I'm afraid I don't understand this. Do you mean the other funds that I could switch to other than the managed fund I'm in?

Cheers

Jon.

Yes. If you are up for investing and accept the risk of investing then the fund choices you have are very good for an endowment. Not the bog standard fund but a spread across the funds available.

Remember that the lowest point on the markets was October. We have seen around 13% recovery since then. it wont continue at that rate (if only :rolleyes: ) but you can see that your projections of 4, 6 & 8% havent reflected the last 3 months and havent reflected the last 18 months for the drop.

You are now buying units back at 2005 prices. Are you prepared to continue buying them cheap on the belief that they will go back up once the signs of recession come to an end or would you prefer security?

A lot of people believe that for the long term, this is a great buying opportunity for monthly payments. It may turn out to be but it may not. However, historically (and looking at other recessions and even the great depression) growth did follow during and after. Nothing guaranteed of course but knowing the pros and cons does allow you to make an informed choice.

If you want security, you clear the mortgage. If you think its a good time to be buying monthly and accept the risk, then the endowment you have can do that.

BigLad_2

Thanks DunstonH,

I think the clincher for me may be the amount of debt I need to clear:

NR mortgage of 78 K& NR unsecured loan of 25 K (both 6.59% till this August then SVR) , Lloyds loan of 10K (3.5 years left at 7.9%), credit cards of 15K (various life of balance rates from 5.9& to 8.9%).

Salary = only £ 2,200 net per month :-(

You've given me food for thought. I just wish I knew more about finances in general. . .

Thanks to Ed and DunstonH for your opinions. At the end of the day I know I have to decide for myself, but in the meantime if you (or anyone else) has anything further to add then I'm all ears :-)

Cheers

Jon.