I need to face up to my endowment!

Jetlagged_2

I have a 25 year with-profits L & G policy. I have been undecided as to what to do with it for some time. I have been unable to get any company to even offer to buy it off me.

However, it is projected to have a massive shortfall, and I have already converted the difference to a repayment mortgage. Now I'm wondering whether to make it paid up and pay the premium into my mortgage account instead. I understand that the life cover will continue to operate. Am I correct, or does this change from company to company? We are both healthy (touch wood!) and getting extra life cover would not be too difficult, if needed.

So many questions, sorry. Any advice will be greatly received, as I am completely stumped. Do I keep it, surrender it or make it paid up?

Here are the figures: Premium £125.25 monthly , maturity June 2020, basic sum assured and annual bonuses £37,663, life cover £86,191, surrender value £9931.

If I keep the policy running -projections are £60,000 @ 6%, and £47,700 @ 4% .

Paid up £12,137. Paid up forecast £25,500 @6%, £19424 @4%.

Thanks in advance for any replies.

dunstonh

However, it is projected to have a massive shortfall, and I have already converted the difference to a repayment mortgage. Now I'm wondering whether to make it paid up and pay the premium into my mortgage account instead. I understand that the life cover will continue to operate.

Incorrect. MOST companies will cease the life cover when you make the plan paid up.

With a with profits endowment, the provider is not allowed to include any terminal bonus in the forecast. So the 4,6,8% projections are based solely on annual/reversionary bonuses. With Legal and General's financial strength you are in one of better with profits companies. You could assume 6% to be reasonable for them over the long term (and you still have 16 years). You would like to think that they will be able to add in some terminal bonus over those years too.

Making the plan paid up will cost you £35,526 (37,663 minus £12,137). Thats a lot of money to lose.

So, the target is £86,191. I personally would look at the 6% figure of £60k and convert the difference to repayment mortgage and keep the endowment running. Any terminal bonus could then be extra or be used if it doesnt make 6% over the term. Of course, you would monitor it every few years to make sure.