Surrender Aviva endowment?

nokio

Hello, this is the first time I've posted so apologies if Im asking a really daft question!

I have a with-profit endowment policy with Aviva (originally Commercial Union). The maturity date is 7 Oct 2021 and the monthly payment is £50.96. The currrent surrender value is £7,847.

A few years back, I switched my mortgage to a repayment mortgage - I have around £26k left to pay up until October 2021. I kept my endowment policy on as a savings plan but Im worried about the constant supply of red alerts! (In the last alert they predicted 4% - £10,900 shortfall, 6% - £6,000 shorfall and 8% £100 shortfall).

I'm seriously thinking of surrendering the policy and popping the money into an ISA. I realise this means taking a hit on what Ive already paid in but I dont want to keep paying into the policy if theres a better route to take. Do you think this sounds a good idea or is it best to continue with the policy?

Thanks for any help you can offer.

daveyjp

We are in the same boat, but with 6 years left. Each year I do a calculation between surrender value and expected value less premiums to full term. I expect in the next couple of years cashing it in may be a better option than going full term.

Don't forget your endowment also provides an element of life insurance to pay off your mortgage. You need to factor in paying for this if you cash it in.

dunstonh

In the last alert they predicted 4% - £10,900 shortfall, 6% - £6,000 shorfall and 8% £100 shortfall

They are not predictions. They are example illustrations at rates set by the FSA.

What is your mortgage promise value (MEP)? This can often be the deciding point on whether to keep the policy or not. The MEP is not included in the projections but added on top upon maturity.

nokio

Thanks for the reminder about the life insurance Daveyjp. Theres lots to think about!

dunstonh wrote: »

They are not predictions. They are example illustrations at rates set by the FSA.

What is your mortgage promise value (MEP)? This can often be the deciding point on whether to keep the policy or not. The MEP is not included in the projections but added on top upon maturity.

Thanks for replying dunstonh. The letter which included the example illustrations says that a top up payment may be made from the MEP providing the investment return on their free reserves is sufficient. Its says the shorfall could be reduced by £4,400 - the maximum promise amount. Thanks again for any advice you can offer.

nokio

Not sure if I should have mentioned this but the target amount for the endowment policy is £32,000.

dunstonh

Basically, you add that £4,400 to the projections (to a maximum of the original target amount). The MEP is fully funded by Aviva and whilst they could possibly withdraw it, it is unlikely and in these days of TCF (an FSA initiative), its unlikely it would be viewed on favourably by the FSA given how long they have been offering it (plus its been through the tech stocks crash and the global recession and its still there).

The Aviva one is capable of 6% including final bonus. Indeed, recent statements appear to have grown by more than 8% over the last year if you include final bonus (which you must). However, sticking to 6% is more likely plus £4400 means you wont be far off target. Of course, you may not get 6%. That is just within its potential.

nokio

Thanks dunstonh - really appreciate your thoughts on this