Surrender or wait

Hillwalker

I'm new so aplogies if you've discussed this at length previously.
I'm 18 yrs into a 25 yr Endowment mortgage and over the last 5/6 years made significant efforts to ensure our mortgage will be paid off without need of the Endowment. We have offered the Endowment for sale but no takers. From the annual statements we receive I'm sure I could get a better growth elsewhere.
Q. Should we cut our losses and surrender the Endowment and re-invest the money else where.

Q. Will the endowments policies recover ?

Xbigman

Endowments usually have a valuable terminal bonus that is worth having. You also pay a penalty for cashing them in early. If you can't sell them on then keep them going yourself.

You might have an option to stop paying in and let them run their course for the full 25 years (I think its called making them paid up) but you need to speak to the provider to see if there are any penalties to this option.

Personally I'd stick with it. The stock market is doing ok right now.
Regards



X

dunstonh

Q. Should we cut our losses and surrender the Endowment and re-invest the money else where.

Q. Will the endowments policies recover ?

Endowments are just a tax wrapper. They dont make or lose money. Its where the endowments invest that matters and how much the charges are. Some endowments are good, some are bad. We need to know the data before we can tell you.

You may have a Prudential endowment in with profits which should be fine (Pru have not yet failed to pay a surplus and are not expecting that to change). Or you could have an old Royal Sun Alliance (now phoenix) with profits endowment which are usually very poor. Or you could have a Royal Sun Alliance unit linked endowment in some of the better funds and doing really well.

The worst thing to do, is do nothing. Asking the question is the first step to finding out but we need to know about the policy to be able to help you.

Hillwalker

More details:
Company..Scottish Widows
Entry date 1987
Maturity date 2012
We pay £43/month
It was supposed to pay off a 30,000 mortgage
I asked for a Surrender value and estimated value at maturity last year and recieved the following information.

Surrender Value 12,039
Death Benifit 30,000
Assumed future growth of 4% maturity value would be 20,300
Assumed future growth of 6% marurity value would be 23,600
No idea if the figures above include "terminal bonus" and to be honest I have never understood what and how a TB is calculated so not sure if it's significant or not.

Hillwalker

dunstonh wrote:

The worst thing to do, is do nothing. Asking the question is the first step to finding out but we need to know about the policy to be able to help you.

Hi dunstonh,
Does the additional information I posted help ?
.
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EdInvestor

Hillwalker wrote:

Surrender Value 12,039
Death Benifit 30,000
Assumed future growth of 4% maturity value would be 20,300
Assumed future growth of 6% marurity value would be 23,600

This would appear to be a unit linked endowment: this would explain why you can't sell it.If so, it won't have a terminal bonus attached at maturity.

Let's assume you pay an interest rate of 5% on your mortgage. If you surrendered this policy and used the lump sum to reduce the loan immediately, also increasing the monthly repayment by the amount of the endowment premium, then at maturity your return would be 19,738.

This is less than their projection at 4%, and the policy also contains free life cover. If this is a unit linked policy it ought to make at least 6% and perhaps a bit more.

It really boils down to how happy you are to take a risk: if it doesn't worry you, stick with the endowment, if it does, then junk it and proceed as above. You may get a bit less, but you know where you stand.

Hillwalker

EdInvestor wrote:

This would appear to be a unit linked endowment: this would explain why you can't sell it.If so, it won't have a terminal bonus attached at maturity.

Don't no whether it's unit linked or not but I've never heard that mentioned before. What I do know is that it's a "with profits" endowment if that explains the difference. I get a statement each year saying what bonus has been added for the previous year. It also mentions a terminal bonus but no figure attached and the explaination is just finacial garbage to me....

dunstonh

If its with profits, then work on the lowest projection figure as best case scenario with Scot Widows and dont bank on a terminal bonus being there.

If its unit linked, then Scot Widows do have some good funds and 8% is within it's potential. If unitised with profits, then the lowest projection figure to middle is possible but I would still work on lowest

Rick62

These companies make it up as they go along. They take your money 'invest' it and have no accountability at all, there is absolutelty no way of finding out the return or even linking what they allocate to you to the underlying return. To add insult to injusy they call it 'bonuses' rather than investment return, making out like they are giving you a gift or something.

However, I'm keeping my policies till maturity. My theory is that because they crashed so badly a few years back, any endowment management company with any brain will have been ultra cautious, they have cut 'bonuses' right back, cut terminal bonuses right back and are freely inviting cancellations. This means they should be able to exceed expectations going forward, maybe by quite a lot.

Imagine if they underperformed again, they all know that they would be sleighted as companies and never get employed again as individuals. Right now they have all been able to write off as much as they like, because the whole industry has, they can't afford to make that error twice.

dunstonh

However, I'm keeping my policies till maturity. My theory is that because they crashed so badly a few years back, any endowment management company with any brain will have been ultra cautious, they have cut 'bonuses' right back, cut terminal bonuses right back and are freely inviting cancellations. This means they should be able to exceed expectations going forward, maybe by quite a lot.

Have you seen the performance of most fixed interest, gilts, index linked, corporate bonds etc in the last year or two?

Then consider that most of the with profits funds have yet to return to pre crash levels and many will take 20 years before they do. And most are now invested to protect their solvency and not to provide investment returns.

And lastly, legacy business has limited impact on current business as things have moved on. Many of the weaker insurance companies have offloaded or will offload their legacy life and pensions book onto a vulture capital company and wash their hands of it whilst the new company sits back and takes the charges.

Unless you are in Pru, NU and perhaps L&G, sitting back on a with profits endowment and hoping for a recovery could result in you watching that shortfall get bigger and bigger.

EdInvestor

dunstonh wrote:

If its with profits, then work on the lowest projection figure as best case scenario with Scot Widows and dont bank on a terminal bonus being there.If its unit linked, then Scot Widows do have some good funds and 8% is within it's potential. If unitised with profits, then the lowest projection figure to middle is possible but I would still work on lowest

Agree with this.Find out the nature of the policy.