Has this endownment been value for money?

gerbalsco

My Father(84) took out a 19 yr endownment on my Mother's(76) Life 14 yrs ago to pay for the purchase of their council house (£24,000).

Basic Sum Assured £14,063 Guarunteed Death Benifit £25,500
Monthly Premium £102.28 = £23,000 paid over term.

This looks like shockingly poor value to me as at even the most optimistic performance forecast 7.5% they would make a very modest profit. But I dont know enough about how these products work,so I was hoping for some more knowledgeable opinions.

My Father paid off the mortgage a few years ago with another investment that had matured. Recently the insurance man(now retired) that had originally sold the endownment to my Father put a Financial Adviser in touch with him. He has advised my Father to sell the endownment. My father has been receiving shortfall warnings for many years with with Bonus Rates Declared at 0.4% Basic Sum and 0.5% Annual Bonuses for some of the most recent years i've seen (including 2007 which I thought was ok for the stock market).

I would very much value any comments and opinions on any of these matters.

dunstonh

The problem with the stockmarket is that it goes up and it goes down.

If it goes down in the early years, there isnt much of a balance for your investment to go down by and it actually helps future contributions. However, if it goes down in the later years, it has a much greater impact.

For example, £200 losing 40% is an £80 loss. However, £20,000 losing 40% is an £8000 loss. The first one you dont care about as its small and at the start. The last one is significant and near the end (and is what happened last year).

There was another issue as well in that many insurance companies closed their doors for new business in the last 15 years and are running on a "run down" basis. This means their funds are generally invested for financial solvency as a priority and not investment returns. That means many are have high holdings in low risk investments which generally have low returns (look at cash savings now for example).

In your father's case, an endowment at age 70 seems a strange decision but the their ages mean life assurance is very expensive. That is why the amount paid is very close to the death benefit. Statistically, your father is likely to die before maturity. Sorry to put that so bluntly but that is how these things are priced.

Endowments are obsolete. Its like driving round in an Austin metro. Highly flawed and not a patch on modern products but the norm in their day.

gerbalsco

Hi,
Thanks for the very informative reply.
Have you any opinions on selling the endownment and if yes then any ideas what he may expect.

Ger

gerbalsco

Hi,
Thanks for the very informative reply.
Have you any opinions on selling the endownment and if yes then any ideas what he may expect.

Ger