Endowment Question when you pay off mortage early

nyck

My Mate has a 20K mortage with an endowment to pay it off.
He has come into some money and wants to pay off the 20K mortage.
The endowment still has 4 years left to run.Am i right in thinking if they pay off the mortage today and he or his wife dies next month they will get the full 20K even though the mortage is paid off

thanks nyck

maninthestreet

The endowment policy is separate to the mortgage. If the policy is still in force, assuming it covers the lives of both your mate and his wife, it would pay out on the death of either, even if the mortgage has been paid off.

Gorgeous_George

maninthestreet wrote:

The endowment policy is separate to the mortgage. If the policy is still in force, assuming it covers the lives of both your mate and his wife, it would pay out on the death of either, even if the mortgage has been paid off.

I think I'm right in saying that the life cover provided by the policy (in real terms) is limited to the difference between the 'Sum Life Assured' (£20K?) and the surrender or sale value of the policy at any given time.

In other words, if the policy is currently worth £15K and the amount payable on death is £20K, then there is only £5K worth of life insurance i.e., if your friends cashed his policy in and received £15K, they would need £5K of life cover to replace the cover the policy is providing.

Hope that makes sense!



GG

maninthestreet

Gorgeous_George wrote:

I think I'm right in saying that the life cover provided by the policy (in real terms) is limited to the difference between the 'Sum Life Assured' (£20K?) and the surrender or sale value of the policy at any given time.

In other words, if the policy is currently worth £15K and the amount payable on death is £20K, then there is only £5K worth of life insurance i.e., if your friends cashed his policy in and received £15K, they would need £5K of life cover to replace the cover the policy is providing.

Hope that makes sense!



GG

If the policy is not surrendered, then it will pay out on death the sum assured.
If the policy is surrendered, then nothing will be paid out on death, as the policy would no longer be in place. My understanding of the question asked
by nyck is that the endowment policy would remain in place, even though the
mortgage had been paid off.

Gorgeous_George

maninthestreet wrote:

If the policy is not surrendered, then it will pay out on death the sum assured.
If the policy is surrendered, then nothing will be paid out on death, as the policy would no longer be in place. My understanding of the question asked
by nyck is that the endowment policy would remain in place, even though the
mortgage had been paid off.

And I agree.

I was trying to point out that there are two options:
1. If the policy is not surrendered, then it will pay out on death the sum assured. I assume £20K.
2. If the policy is surrendered, then it will pay nothing on death but it will pay something in life i.e., the surrender value.

The difference between the two options is the life cover that is being provided by the policy. If the surrender value today is £15K then, for a policy paying £20K on death, there is only an effective £5K of life cover.



GG