Yet another endowment Q, quotations attached.

MissScarlett_3

Good Morning

I have had 2 quotations this morning and would appreciate a bit of advice from any experts out there!

1st Endowment commenced July 1987, £16200 @ £21.41pm
Fully paid up September 2005.

2nd Endowment commenced May 1989, £24800 @ £31.50pm
Fully paid up October 2005.

Surrender values £9551 and £10862 respectively.

End 1

Maturity benefit at 4% £11700
6% £13000
8% £14500

End 2

Maturity benefit at 4% £14200
6% £16300
8% £18700

Both Home purchaser plans with Prudential but former Scottish Amicable plans.

We have changed to a repayment mortgage WEF Sept 05.

My question is deal or no deal! should I wait until maturity or cash them in and reinvest/pay some towards the mortgage although cant do that until next October as tie in until then. We dont need the money now. Thanks in advance as I know this board has some great advisors:T

Edit: The maturity dates are July 2012 and May 2014.

MissScarlett_3

anyone?

MissScarlett_3

That'll be a no then.......

EdInvestor

What interest rate are you paying on the mortgage and when is it due to end?

MissScarlett_3

currently 4.39% ends Oct 2007 then 16 years remaining at whatever new product we transfer to. Current balance approx £124k.

EdInvestor

MissScarlett wrote:

Surrender values £9551 and £10862 respectively.
End 1 (matures 2012)
Maturity benefit at 6% £13000

End 2 (matures 2014)
Maturity benefit at 6% £16300

On the assumption that you will end up paying something like 5% on your new mortgage next year, if you surrendered and used the lump sums to reduce the amount owed, then the respecive overall return in 16 years at maturity would be

Policy 1) 20,849
Policy 2) 23,710


If you held onto the endowments until maturity and assuming they grew at 6% (probably reasonable for a Scot Amic endowment), and then used the maturity proceeds to reduce the mortgage, then the outturn at maturity would be

Policy 1) 21,176
Policy 2) 24,083.


The risk premium has completely disappeared, probably because you are paying higher charges due to making them paid up, so I would junk them next year and use the money to reduce the remortgage.

Replace any remaining life cover you might need before surrendering.

BTW did you attempt to sell these endowments before making them paid up?

dunstonh

The risk premium has completely disappeared, probably because you are paying higher charges due to making them paid up, so I would junk them next year and use the money to reduce the remortgage.

Charges often reduce when made paid up. There is no way to tell that without checking the policy info.

The surrender penalty may reduce at various points so waiting until then can be a good idea. Again, the policy info needs checking to verify if that is the case or not.

MissScarlett_3

EdInvestor wrote:

On the assumption that you will end up paying something like 5% on your new mortgage next year, if you surrendered and used the lump sums to reduce the amount owed, then the respecive overall return in 16 years at maturity would be

Policy 1) 20,849
Policy 2) 23,710


If you held onto the endowments until maturity and assuming they grew at 6% (probably reasonable for a Scot Amic endowment), and then used the maturity proceeds to reduce the mortgage, then the outturn at maturity would be

Policy 1) 21,176
Policy 2) 24,083.


The risk premium has completely disappeared, probably because you are paying higher charges due to making them paid up, so I would junk them next year and use the money to reduce the remortgage.

Replace any remaining life cover you might need before surrendering.

BTW did you attempt to sell these endowments before making them paid up?

Yes I tried to sell them about 5 years ago but couldn't.

I'm a wee bit confused, to me your figures tell me it's best to keep the policy yet you suggest dumping them,

I have taken out life insurance already as I understand that now that the policies are paid up the life insurance part of them disappears.

Cheers for your reply, appreciated:T

MissScarlett_3

dunstonh wrote:

Charges often reduce when made paid up. There is no way to tell that without checking the policy info.

The surrender penalty may reduce at various points so waiting until then can be a good idea. Again, the policy info needs checking to verify if that is the case or not.

And what about the terminal bonus, is this worth taking into account, will there be one even or is this something that can't be answered

Thanks for your help too, again appreciated.:T

:xmastree: :snow_grin :snow_laug :santa2: :xmassmile :rudolf:

dunstonh

You still get qualify for a terminal bonus. However, the amount will be lower as you ceased the premiums and the guaranteed sum assured was reduced.

Scot Am plans are actually very good with a success rate of achieving target currently at over 95%. Its a shame you made it paid up.

Looking forward,the only reason to really consider keeping it is the exit penalties. If they are significantly lower in 3 years time for example, holding on to it until then would make sense. If it is an decrease in the penalty by a small amount each time, then calling it a day could be better.

EdInvestor

MissScarlett wrote:

I'm a wee bit confused, to me your figures tell me it's best to keep the policy yet you suggest dumping them,

There is virtually no difference in the result at the end - a couple of hundred pounds at best.But with the endowment you take a risk of getting much less than that whereas using the money to repay the ortgage is guaranteed.

If these policies were not paid up, they would probably be worth keeping.But now, IMHO, they are not.You are taking a risk for no extra return, why would you do that?