Are the endowment warnings a bit of a con?

easy

Our mortgage is backed by 4 different endowment policies, taken out over a number of years by dh and I, 3 of them before we met/married, the last when we bought this house 10 years ago.

Now over recent years we have had the usual warning letters that these policies may not reach their predicted values etc etc, and inviting us to put more into the policies.

We didn't add to them, because it seemed like throwing good money after bad. We are trying to build up our own savings to meet the eventual shortfall, and pay what we can off the capital.

DH got a letter on Saturday, telling him that the first of the policies will mature in December. This policy was taken out to yield £8K.

Apparently, it's going to pay out nearly DOUBLE that !! Of course, we're really pleased, but do wonder if all these requests to add to the policies is even more of a con than we first thought ??

dunstonh

but do wonder if all these requests to add to the policies is even more of a con than we first thought ??

No.

Investments fluctuate in value. The use assumed growth rates in projections which assume straight line returns. That never happens. Also, the projections dont always project from the current value but from a surrender value. That can offer understate the position that is "likely" to happen.

There is no insurer interested in actually making adjustments to endowments. Indeed, most wont allow it now. They were probably only offering it to cover themselves in case of shortfall.

Not all endowments are bad and many projections are totally unreliable as the only source of information on what you may get back.

easy

dunstonh wrote: »

There is no insurer interested in actually making adjustments to endowments. Indeed, most wont allow it now.

So the 3 companies that write to us saying our current policies won't meet expectations, but offering to sell us additional policies to meet the shortfall don't want the business then?

easy

dunstonh wrote: »

many projections are totally unreliable as the only source of information on what you may get back.

So how do we plan the situation then?

dunstonh

easy wrote: »

So the 3 companies that write to us saying our current policies won't meet expectations, but offering to sell us additional policies to meet the shortfall don't want the business then?

Correct. Many life companies that offer these are closed for new business and are just offering it as it was part of the way the contract worked when it was set up.

Closed life companies dont like anything that creates work.

We dont know if yours are a closed insurer or not but there really isnt any commercial interest in setting up another plan (as you cant top op an exisitng one without restarting and potentially breaking qualifying rules). They do it because the contract said they would let you know.

So how do we plan the situation then?

Analysis of where it is invested and how the figures are come by. Projections can in some cases overstate and in some cases understate. They are more reasonable on unit linked plans. However, a projection in March, for example, would have given 4, 6 & 8% projections (assuming FSA defaults used). Yet since March the stockmarket is up 40%. So, how does that fit with 4, 6 & 8%? Just as it was down 43% over the previous 18 months.

Illustrations on conventional with profits plans tend to be the ones that are less likely to be accurate. Many dont include the final bonus accrued to date. Some project from the surrender value. Those with mortgage promise values dont include them in the projection. A few of the older ones dont pay any final bonus until maturity is hit (so it doesnt accrue on the running value in projections).

Old endowments were never designed to give projections like this. Many of the systems could not be altered to give a correct value so compromises had to be made and the view was that understating was better than overstating. In some cases we have seen projections at 4% lower than the guaranteed minimum maturity value or lower than the current surrender value. That is often a clear indicator that your projections are being understated.