Endowment Compensation Received - What Now ?

littleboo

Thanks to advice on this site I complained about an endowment my wife and took out for our first property and have been offered compensation of £7,369, which is very nice.

However, like many others, I'm a bit unsure on what do to next, invest the money or use it to reduce the capital on the mortgage and what to do with the endowment - keep it or cash in ?

Mortage amount £53400
Endowment Details :
Royal & Sun Alliance with Profits
Commenced 1988
Matures 30/07/2013
Basic Sum Assured £17,622
Surrender Value £19,373
Monthly Cost £67.86

Projected Final Amounts as at April 05
3.75% £31,600
4.5% £33,300
5.25% £35,000

Can anyone advise ?
Thanks in anticipation

wassup

I'm just about to start a complaint. Can I ask if u did this yourself or used an agent. I'm looking for recomendations for a good agent as i dont have time to do this myself.

thx.... sorry cant help with ur question.

littleboo

I used the Which letter generator Here which does a lot of the work for you. I have to say that it was a cold call from an agency that spurred me into action, but I decided to go it alone, based on info on this and other sites. The worst bit is filling in the questionaire, but I would imagine you would still have to provide the info if going through an agent.

EdInvestor

If you surrendered the endowmnet and put it on deposit @4% also paying in the premiums until maturity you would get 32,077.

Adding in the compo amount as well brings the total up to 41,744.

Using both amounts to reduce the capital owed on the mortgage, assuming your rate is 5%, gives a return of 44,451. getting a bot closer.

There is a strong possibility at RSA/Phoenix that on maturity you will receive the guaranteed value only (ie forget the growth projections) so it's almost always sensible to depart from this zombie fund if you have an endowment.

dunstonh

I'm just about to start a complaint. Can I ask if u did this yourself or used an agent. I'm looking for recomendations for a good agent as i dont have time to do this myself.

10 minutes to fire the initial letter off and a questionnaire to fill out a few weeks later. Questions that still need to be answered if you use a third party firm. So its going to take some effort from you whatever you do.

littleboo

EdInvestor, fantastic, thanks for those figures

Just so I'm sure I understand the second option fully - this would use the surrender value and compensation amount to pay a lump sum off the capital. Presumeably I then keep making the same monthly mortgage repayment, effectively now overpaying as the capital has reduced ? What about the endowment monthly premium that I wouldnt be paying ? Has that been included somewhere ?

EdInvestor

littleboo wrote:

Just so I'm sure I understand the second option fully - this would use the surrender value and compensation amount to pay a lump sum off the capital.

Yes.

Presumeably I then keep making the same monthly mortgage repayment, effectively now overpaying as the capital has reduced ? What about the endowment monthly premium that I wouldnt be paying ? Has that been included somewhere ?

You would increase the mortgage payment by the amount of the endowment premium to get this result thus overpaying even more more.

What you could also do is remortgage - either to a cheaper i/o if available then proceed as above with the overpayment route, or to a cheap repayment deal. The advantage of the overpayment of i/o mortgage approach is that it builds in flexibility, in case some disaster occurs like you lose your job - you can immediately cut costs by not overpaying for a while, which you can't with a repayment mortgage.

Of course many people prefer the peace of mind with the repayment deal.

Probably best to go see a broker or DYOR to see what good deals are available - at any given time different types of mortgages may offer better value.

BTW if you need to replace the life cover, do it before surrendering the policy.

littleboo

Thanks for your help and advice, it's very much appreciated.