Should I surrender SL Endowment Assurance & Homeplan

madwalker

Hi,

I have 3 different plans with SL, and am trying to decide whether to cash them in. The figures are based on Feb 2006 as I haven't had the latest paperwork through yet. From looking through the Forums it appears that I cannot sell my Homeplan policies, but can sell my Endowment Assurance (so I will try and get some estimates for that).

My interest only mortage is 86,000. I am on a fixed rate (4.99) which finishes at the end of this month. However I am in the process of selling my house, (have moved in with parents) so will just go onto variable rate (7.15), and they review mortgage when I get a new house. Currently I am overpaying about £300 per month.

The policies are:
Type: SL Endowment Assurance
Guaranteed sum assured: £13431
Declared bonuses: £5618 (Promise 3570 - 5355)
Surrender value: (from SL) 10,094
Monthly premium: 50.59
Maturity date: Nov 2016
Maturity projections: 20,400 (-20950), 23800 (-17525), 27800 (-13525)

Type: SL Home Plan
Guaranteed sum assured ? (Death benefit 42606)
Declared bonuses: Promise £2402- £3604
Surrender value: 6511
Monthly premium: 66.12 (Life cover 24.96)
Maturity date: May 2023
Maturity projections: 25900 (-16706), 32800 (-9806), 41700 (-906)

Type: SL Home Plan
Guaranteed sum assured ? (Death benefit 2286)
Declared bonuses: Promise £22- £34
Surrender value: 868
Monthly premium: 10.00 (Life cover 0.96)
Maturity date: Sep 2013
Maturity projections: 1900 (-386), 2120 (-166), 2350 (-64)

Any advice would be much appreciated.

One additional question - having looked at these figure - if I am single, and the house is worth twice as much as the mortgage - do I need the life assurance or should I cancel it & put the premiums towards the overpay of the mortgage?

Thanks

Jane

EdInvestor

Hi Jane

madwalker wrote: »

Maturity projections: 20,400 (-20950), 23800 (-17525), 27800 (-13525)

With policy 1 if you surrendered it and paid the lump off the mortgage @ 7.15% also paying in the premiums to maturity your return at the end would be 28,979.

With policy 2

Maturity projections: 25900 (-16706), 32800 (-9806), 41700 (-906)

Following same procedure as above, the return would be 42,879

And with policy 3

Maturity projections: 1900 (-386), 2120 (-166), 2350 (-64)

The return would be 2,208.

Now is quite a good time to pay lump sums off mortgages because interest rates are quite high: with SL endowmwnts projected to return about 4% long term, obviously you do better with an instant 7% return on much of the money and no risk.

do I need the life assurance or should I cancel it & put the premiums towards the overpay of the mortgage?

The endowments provide life cover, I hope you aren't paying for more? If you surrender the endowments, there seems little point in replacing the life cover if the lender doesn't require it in your circumstances. The calculations above assume that you would switch the endowment premiums over to boost the mortgage payment until maturity.

Gorgeous_George

Hi madwalker

Did you know that you can check your policies online.

I pay £45 per month and recent surrender values have been as follows:

Date.......Basic Value.....Final Bonus.....Surrender value
Sep-06...£19796.28.......£1716.34........£21,512.62
Oct-06...£19878.95.......£1789.11........£21668.06
Nov-06...£19961.65.......£1862.43........£21824.08
Dec-06...£20044.44.......£1938.30........£21982.74
Jan-07...£20127.27.......£2012.73........£22140.00
Feb-07...£20210.15.......£2142.28........£22352.43
Mar-07...£20293.09.......£2232.24........£22525.33

My simple maths shows this as a return of 6.8% per year which is neither outstanding nor disastrous.

My confidence in SL is higher today than for quite a few years and, being the eternal optimist, I hope for better returns over the next few years. My policy matures in Jan 2010 so not a lot of time to recover losses of recent years.

It should also be noted that the insurance value of my policy £31,045 (or £8520 more than the current surrender value).



GG

madwalker

EdInvestor,

That's really helpful thankyou. :T

Based on the fact that I may get a better rate of interest once I shop around for my mortgage, if it's not too cheeky can you give me a breakdown of how you calculated the maturity to the end? I've tried to do it, but didn't get the same answer as you...duh.

Thanks

Jane

madwalker

Thanks GG - I'll give that a try to - as long as I don't get too depressed.

Jane

dunstonh

EdInvestor,

That's really helpful thankyou. :T

No its not.

Ed has failed to take into account any terminal/final bonus that exists on teh plan. There is no mention of your endowment promise value which again needs to be added on top. Plus the cost of life cover hasnt been taken into account. So, if replacement life cover takes 15%-20% of the monthly cost, then the projections Ed has used on the mortgage should be 15-20% lower.

You have to compare like for like and include the full values otherwise you dont get an accurate figure. Also, some of the early SL plans project from the surrender value and not the real position as they are unable to calculate a current value. This can artificially lower the projections on the endowment. You can usually spot these by looking at the details of the 4% projection and how it compares to the current position.

In your case you may not need the life cover but the other things still apply.

Mr_helpful

EdInvestor wrote: »

The endowments provide life cover, I hope you aren't paying for more? If you surrender the endowments, there seems little point in replacing the life cover if the lender doesn't require it in your circumstances.

I do hope the OP is single and without any dependents. Just because lenders often dont demand it doesnt mean its not needed. The vast majority of people with partners or children are underinsured.

Gorgeous_George

Mr_helpful wrote: »

I do hope the OP is single and without any dependents. Just because lenders often dont demand it doesnt mean its not needed. The vast majority of people with partners or children are underinsured.

Madwalker's 1st policy has a surrender value of £10,094. If the Guaranteed Sum Assured is the same as life cover then this policy is only providing £3,337 of 'life cover' (the remainder of the Guaranteed Sum Assured being the policy's current surrender value).

I just worked out that if I had put my £45 per month in a different investment, I would have needed 5.2% (since 1 Feb 05) to match my current SL surrender value. Hindsight is 20/20.



GG

dunstonh

If you look at policy 1, you can see the problem with the projections:

Type: SL Endowment Assurance
Guaranteed sum assured: £13431
Declared bonuses: £5618 (Promise 3570 - 5355)
Surrender value: (from SL) 10,094
Monthly premium: 50.59
Maturity date: Nov 2016
Maturity projections: 20,400 (-20950), 23800 (-17525), 27800 (-13525)

Guaranteed sum assured is £13431 plus bonuses of £5618 = £19,049
add on the final bonus currently attached (which madwalker hasnt posted) and then add on the promise figure (lets say £4000) and you have a current position that is higher than the 4% projection and almost certainly higher than the 6% and could be closer to the 8%. And thats without another 9 years of bonuses.

JoeK_3

dunstonh wrote: »

If you look at policy 1, you can see the problem with the projections:



Guaranteed sum assured is £13431 plus bonuses of £5618 = £19,049
add on the final bonus currently attached (which madwalker hasnt posted) and then add on the promise figure (lets say £4000) and you have a current position that is higher than the 4% projection and almost certainly higher than the 6% and could be closer to the 8%. And thats without another 9 years of bonuses.

Dunstonh, have you not got any other hobbies?

Don't forget that life insurance is not just taken out for the lenders benefit but for dependants and there is a mother that the debt could be left too. Further than that there may be critical illness included in the policy and a single person would need that more than anyone.

Go and have some sleep!

JoeK

Mr_helpful

Gorgeous_George wrote: »

Madwalker's 1st policy has a surrender value of £10,094. If the Guaranteed Sum Assured is the same as life cover then this policy is only providing £3,337 of 'life cover' (the remainder of the Guaranteed Sum Assured being the policy's current surrender value).
quote]

You have hit the nail on the head. In the early days of an endowment all the risk is life assurance ie if the person dies it costs the company big time but later on much of the sum assured has been saved up so the life element is reduced and more money goes to the investment giving better returns at the end. People forget when comparing performance about the life assurance element and when cashing in an endowment they find replacing the life assurance is often not as cheap as they thought. If you only took the part of your premium that was actually invested then performance would not seem so bad.