Selling Endowment Policies

dunstonh

Dunstonh why do you use the phrase build up which implies final bonuses gain over the policy life.

Because you dont have to wait until maturity.

I am trying to point out the fact that Final bonuses do vary (increase/decrease) and are only applied as above,they do not build-up or accrue and in Avivas case have this year dropped to there lowest level (also regular bonuses) which i can only assume is because of adverse market conditions?

The value of the investments can go down as well as up. However, that is a different issue to qualifying for a final bonus. You dont have to wait until maturity to get a final bonus. You could have a final bonus added to the plan on day 2 of the investment. It could be wiped out in year 3 and jump up massively in year 4 and then reduced again in year 5. The fact the final bonus fluctuates throughout the life of the investment plan in question is a different issue. The providers will tell you what your final bonus accrued to date currently is. The fact it can go up/down in future doesnt matter as you are looking at what you have now (actually it does matter as you may make a decision to get out whilst the final bonus is high. - a bird in the hand....)

Annisele

shadowdog wrote: »

I am trying to point out the fact that Final bonuses do vary (increase/decrease) and are only applied as above,they do not build-up or accrue and in Avivas case have this year dropped to there lowest level (also regular bonuses) which i can only assume is because of adverse market conditions?

Final bonuses do accrue. I agree entirely with what Dunstonh said, but you can also look at it like this:

The return you actually get on a with-profits policy comes partly from the annual bonuses, and partly from the terminal bonus.

The insurance company always knows what the actual return on its with-profits fund has been since you started investing in it. It could have declared annual bonuses that accurately reflected your fair share of the total growth of the fund (after adjustments for tax, and smoothing, and various other things), and then not declared a final bonus at all. However, the annual bonuses already declared will usually be less than your fair share of the growth on the fund*.

You could see the final bonus as the difference between your actual fair share of the fund's growth, and the annual bonuses that have already been declared. So, the final bonus accrues as the difference between your fair share of the fund's growth and the bonuses declared gets larger.

If your surrender the policy before the end of its term, then you should still be compensated for the fact that bonuses declared don't reflect your fair share of the fund's growth.

*Sometimes insurance companies get this bit wrong, and the bonuses already declared make your policy worth more than it ought to be. They tend to put that right with an MVA/MVR (Market Value Adjustment/Reduction), which reduces the value of your policy by some %age value.

shadowdog

Annisele wrote: »

Final bonuses do accrue. I agree entirely with what Dunstonh said, but you can also look at it like this:

The return you actually get on a with-profits policy comes partly from the annual bonuses, and partly from the terminal bonus.

The insurance company always knows what the actual return on its with-profits fund has been since you started investing in it. It could have declared annual bonuses that accurately reflected your fair share of the total growth of the fund (after adjustments for tax, and smoothing, and various other things), and then not declared a final bonus at all. However, the annual bonuses already declared will usually be less than your fair share of the growth on the fund*.

You could see the final bonus as the difference between your actual fair share of the fund's growth, and the annual bonuses that have already been declared. So, the final bonus accrues as the difference between your fair share of the fund's growth and the bonuses declared gets larger.

If your surrender the policy before the end of its term, then you should still be compensated for the fact that bonuses declared don't reflect your fair share of the fund's growth.

*Sometimes insurance companies get this bit wrong, and the bonuses already declared make your policy worth more than it ought to be. They tend to put that right with an MVA/MVR (Market Value Adjustment/Reduction), which reduces the value of your policy by some %age value.

Definition of Accrue-To come to one as again,addition or increment,to increase,accumulate,or come about as a result of growth.
How can something that is as variable as a final bonus be regarded as accrueing?. Please could you let me know what endowment provider claims that a final bonus will accrue over the policy term.
I agree that a final bonus is paid to make up the difference between the amount that is guaranteed to be paid(sun assured) and the amount that is decided to be a fair share of the fund.

Antonym to accrue-dwindle,decrease,lessen, which one is it?

Steve1955_2

I would like to thank all of you have contributed to my original request for advice. I took the advise offered and again spoke to Standard Life. The additional information I gained from them was that my surrender value of £29,000k included a terminal bonus of 6.5% ie. £1771.40. If the Policy was maturing today I would receive a 7% bonus plus an MEP of no less than £120.00 and no more than £180.00. The 7% is not guaranteed and they cannot predict what this may be in November 2012 when the policy matures.
Generally speaking I would not consider selling this policy this close to maturity, however over the years a policy which was originally taken out to pay back a £55,000 mortgage in 1987, I have watched slowly being worth less and less.

The guarantee minimum I am now told I will get is £28914.26, if that is safe and will not be reduced because of "market conditions" should I consider holding on to it? If I am only to gain another potential £2500.00 it does not seem that much of a gain.

I was always told that the majority of what you made was in the last year and it was important to keep it until maturity to obtain final bonuses etc. this does not now seem the case as the final bonus is open even if you do not complete the term. Albeit slightly reduced.

Gorgeous_George

I think that the guaranteed minimum can fall.

I have been reading this thread with interest. My thread (link) followed a similar thought process. Interesting to note that I received £26,500 in mid 2008 for a policy designed to pay £31k in January 2010.

I have read nothing since I surrendered my poolicy that convinces me that I did the wrong thing.

GG

p.s. I noted the spelling error but quite liked it so I left it in

dunstonh

I have been reading this thread with interest.

Did you spot my "bird in the hand" comment. I was thinking of you when I typed that as you were a classic example of someone who took the decision to surrender early because of the final bonus you accrued to that point got to a level that made it appealing for you to call it a day early.

shadowdog

dunstonh wrote: »

Did you spot my "bird in the hand" comment. I was thinking of you when I typed that as you were a classic example of someone who took the decision to surrender early because of the final bonus you accrued to that point got to a level that made it appealing for you to call it a day early.

I think georgeous george was stating that nothing has changed his mind that the decision to surrender his policy early was incorrect in the light of ever decreasing regular/final bonuses which given the information i have to hand i wish i had done also.
Here are the facts regarding Aviva final bonuses which are applied on termination.
final bonus for each £1000 of with profits benefit.

2010 with-profit start year 1986 £85
2009 with-profit start year 1986 £110
2008 with-profit start year 1986 £470
2007 with-profit start year 1986 £420
2006 with-profit start year 1986 £315
2005 with-profit start year 1986 £260
2004 with-profit start year 1986 £90
2003 with-profit start year 1986 £145
2002 with-profit start year 1986 £275
2000 with-profit start year 1986 £570
1999 with-profit start year 1986 £530
1988 with-profit start year 1986 £520
1987 with-profit start year 1986 £440


The final bonus varies depending on fund performance and as you can see DECRUUED some years.