Endowment Advice - I've been really stupid!

Sandy444

This is the current information regarding an endowment policy we took out in 1988. Problem is, we took out two loans on this policy and didn't realise that compounding interest was being added. I never used to open the envelopes - just filed them. But opened recent policy statement and realise we now owe more than it's worth. I was told early on when we took out the loan that even if we never made any payments towards the loan we would always have enough to pay it off by the end of the policy. Unfortunately I now realise this isn't the case. Please could someone advise me as to what to do with this policy? Many thanks, in advance, for your help.

Provider: Standard Life

Policy set up for £58,706
guaranteed death benefit

Start Date: 25 April 1988

Maturity Date: 25 April 2013

Benefit Details
Sum assured: £19,080
Decreasing term benefit: if the life assured dies before 25th April 2013 then any remaining term cover (currently £25,733.25 will be paid)

Bonus payments already applied: £13,892.75

Total payments made since start of plan:
£21,158,58

Current payment into plan: £82 monthly

Total Surrender Value: £27,771.35

Illustrative Maturity Values:
3.75%: 32,972.75
5.50%: 34,800.00
7.25%: 36,900.00

Illustrative Maturity Values:
for Paid Up Values:
3.75%: 30,320.25
5.50%: 31,700.00
7.25%: 33,600.00

Paid Up Sum Assured:
16,427.60 (effective date 25 Oct 2009)

Took out two loans on policy amounting to
£13,700 and now owe that amount plus £14,989 in interest - a total of £28,799.

Captain_Chaos_2-2

Hi Sandy444

So looking at it you'v put down you have enough to repay the loans but a shortfall about 20k .

Need to now a bit more about the loans are they mortgages are they interest only what term is left on them who are they with what interest rates thay are on.
and why has the interest rolled uo ion the loan? are you paying monthly to the loan f so how much

cheers rhys

Sandy444

The loans are policy loans taken out from the endowment policy with Standard Life. I will just copy what it says in the letter from SL re the loan: "The total (capital) plan loan outstanding of £13,790, together with the interest of £14,980 will be deducted from the value payable for the plan. The amount of interest shown has been calculated using the interest rate of 2.5% over the current Bank of Scotland base rate and is illustrated to 6 November 2009. As the interest rate is variable and interest is calculated on a daily basis, the figures quoted are subject to change.

Captain_Chaos_2-2

Thanks sandy

I presum these loans are not secured on the house and are not paid for with any monthky contribution directly to the loan.

In that case what to do is thequestion?
Firstly you need to get in touch with endowment provider to see if you have case for misold endowment and perhaps some compo because of that.
Secondly a decision needs to be made whther to continue to pay into something that is giving a very little return for the money you paid in over the years you paid in.

This decision can only be made by you by doing the math.

i.e if you pay in £82 PM you will pay in another £3562
the illustrations given to you suggest you will get Illustrative Maturity Values:
for Paid Up Values:
3.75%: 30,320.25 worst case if its gaining at a rate of 3.75%

it doesn't look like it is gaining at that rate.

what i mean is they are just illustrations you need to phone them and ask what percentage has it ACTUALLY gained over the term they usually send this in writing. that will give you a better idea what to do.

hopes this helps

Sandy444

We bought our policy on 25th April 1988 - three days before the cut-off date that the FSA brought in the regulations. I called Standard Life but they said I didn't have a claim. Tried the FOS but they also said they couldn't do anything because of the date we'd bought the policy - can't believe we missed the date by 3 days.

We no longer have this endowment to pay off our mortgage as we've sold our house and are renting. But I am concerned that if I just hold on to it and continue to only pay the premiums of £82 monthly and nothing towards the loan amount and compounding interest, at the end of it all I will owe them money. So I guess my question is, should I just cash it in now and be done with it. Sorry if I'm not being clear - trying to give all the info I have. Thanks again for help.

Captain_Chaos_2-2

Yeah I understand thats tough question to answer though a lot of professionals aviod it if you cash it in stock can rise like a rocket tomorrow or plummit.

Looking at the math if it was me I would cash it pay loan off i put my £82 pm in a regular saver.

However your not me...Ask yourself this what is your priority ?

Are you a risk taker ? If yes leave it if no cash it in
Would you prefer stability nowing the debt is repaid do you need the worry, all may seem non financial related but that is exactly how you should assesed. After all when you bought it you assumed had very little if not any risk at all.

Can you affor to allow it run. ?

sorry I cant give you a straihgh yes or no but looks athough it doesn't even return 3 percent its pretty pathetic to be fair.

Hope thats ok

dunstonh

Chances are the interest on the policy loan is greater than the likely average bonus and you should be prepared for the situation to get worse rather than better. Of course, no-one knows the future but Std Life With Profits fund is not that good.

getmore4less

One obvious solution is to start paying off the loans while you decide what to do with the policy.

Sandy444

Thanks for your reply - I think you are probably right on this one. The interest added each year is horrendous and the policy matures in only three years time - can't see that there is going to be an amazing turn-around in that time so maybe I should just give it up.