Endowment, cash in or keep. Advice required.

Kelham

First off. Hi everyone.

I will try and keep this as short as i can but there is quite a bit of info i would like to put into this post. Please stay with me and i look forward to reading you comments.

Ok. Here goes. We have an endowment policy that is due to mature in 2013. We changed the mortgage to a repayment one a few years ago but kept the endowment on as a savings plan. We are looking at starting a small business from home and need around £5,000 to get started. We don't have this kind of money saved anywhere else and we would rather not take on a loan.

The endowment policy was originally due to make £24,225 on maturity. However we had a letter in July last year which gave it's value at that time to be £15,500. The letter also included some projected maturity values if it grew at certain rates. These were as follows
4% would give £16,800
6% would give £18,200
8% would give £19,600

The policy also as a sum assured of £7,900 and total bonus of £8,100. Excuse my ignorance, but could somebody explain what this is please.

As you can see there is quite a shortfall from the original maturity value.

We have just received a letter which says the policies surrender value is £14,000.
We are thinking of cashing in this policy. We would take the £5,000 to start the business and the rest we would use to pay off a portion of our remaining mortgage. We have had a look and the amount we would save in mortgage payments and policy premiums would be around £120 a month. We would plan to pay this £120 a month saving as an overpayment each month on the remaining mortgage.

Here's where we hand it over to you guys.
Would you recommend this course of action?
If we surrender the policy is it taxable?
Are there companines still out there who buy endowments.If so would you recommend them and what is the procedure for passing the policy on?

We look forward to reading your comments.

ukcarper

I think the sum assured of £7,900 and total bonus of £8,100 is what you are guaranteed at maturity if you carry on paying premium in addition to these there could be more yearly bonuses and a final bonus.

Looking at your figure you would get £14000 surrender value so that with the £120 over the next 3 years would be £3600 which is £17600 + any interest save on your mortgage.

I have just had an Aviva endowment mature and it didn’t make the 4% figure but who knows what’s going to happen over the next 3 years.

Two things to bear in mind are that you are getting like insurance with the endowment policy and some providers have a mortgage promise, which is paid on maturity and was introduce to cover some or all of any shortfall.

My policy should have paid £20,000 but paid just over £15,000 and that included £2300 promise.

Hope this helps

Kelham

Thanks for posting.

If i understand correctly. The endowment covered us for £24,225 and if we pay off the £9,000 the we will need to make arrangements for life cover of £15,225.

This policy is also an Aviva one.

ukcarper

Ideally you need life cover on the outstanding mortgage amount. I think that the endowment would have covered the £24,225 mine covered the £20,000 it should say somewhere in your paperwork.

I think it would be worth checking if your policy is covered by Aviva’s promise as that could increase your maturity value it increased mine by £2300