Tips on selling endowment please

saxmund

Having been largely lurking on this site for a while it's given me the self confidence to have a go at selling my endowment.

I have a Legal & General with profits endowment that is due to expire in Sept 2016. I pay £35.77 pcm and the surrender value last Thursday was £9600.

The likely returns are:

4% 6% 8%
17300 20200 23600

I had a chat over the phone with a financial adviser at L&G who seemed to be saying that the returns I would get by ploughing the money back into my mortgage (currently 5.64%) would be slightly less than continuing to maturity, although by my calculation this only gives a risk premium of 0.36% if you think that the endowment return is likely to be 6%. It also doesn't allow for the fact that by paying off some of the mortgage I can get my LTV below 80% which should give me some leverage in remortgaging.

I submitted my policy details to APMM last Thursday, and today I got my first quote, for £10,368. This is slightly disappointing as it's only 8% more than the surrender value, but of course I will hang on and see if I get any more quotes.

I was slightly surprised that there only seems to be half a dozen members of the APMM so I did a websearch and found quite a lot of sites offering to sell endowments. However, a lot were APMM members or appear to be a different front end on the APMM site. There appear to be a couple of independant outfits though - Leonard Simmonds Associates t/a 1st4TEPs (https://www.sellyourendowment.com) and Integrity t/a https://www.bestpriceendowment.com. So I have bunged off enquiries to these two.

A third, Lewkay (https://www.endowmentweb.co.uk), is a broker and says "We work as quickly as possible to obtain you the best offer by contacting virtually all of the endowment-purchasing market makers in the UK, some of whom would be impossible for you to deal with directly. Please do not offer the policy elsewhere until we reply, as there are only a limited number of market makers in the UK and we offer to virtually all of them" so I haven't contacted them at this point. Is it likely to be worth doing so?

Is there anywhere else to look for a quote, or have I now covered most of the bases? And are the non-APMM companies reputable? They seem to be FSA regulated so hopefully so.

And one final question: I don't have my 2006 bonus statement yet, although L&G have declared their 2006 bonuses. Do I need to wait for my statement before going ahead, or can market makers already make a judgment about the value of my policy using the known value of 2006 bonuses?

Cheers,

Phil

EdInvestor

I would suggest that you avoid companies which will not pay you for the endowment until they have found a buyer for it ( eg Integrity: do a search of this forum to find more info about them).Sometimes you can wait a long time and a penalty is imposed if you try to cancel the deal.

absolutebounder

Not being a whizz with the old calculator but those returns seem quite good and the projected maturity value even better. Though you dont say what the original term was.

saxmund

Thanks for the heads up on Integrity, and it's a 25 yr endowment policy by the way.

I have been doing some sums and this is what I worked out. It assumes a rate of return of 5.5% for either paying off the mortgage or placing in an investment/savings vehicle:

Based on Surrender value

Policy value 9600
Return on above 5016
Saved contributions 4078
Return on contributions 1065
Total 19,759


Based on Sale of endowment

Policy value 10300
Return on above 5382
Saved contributions 4078
Return on contributions 1065
Total 20,825

In addition, if getting below 80% LTV allows me to get a better rate on the mortgage, I estimate savings of between £1,000 and £3,000 assuming lowering the rate by between 0.1% and 0.25%.

Not sure if anyone would care to cast an eye over my calculations and let me know if I've missed anything major out, or for that matter double counted anything.

I have now had a second quote, for less than the first, so I'm not holding out much hope of getting significantly more than £10,300.

EdInvestor

Don't forget to include the effect of compounding in your calculations.

saxmund

I had thought about that, but it needs a more complicated spreadsheet... I wasn't sure if the return on the policy value should be compounded as I will probably just pay it into the mortgage, however that will save me ££ per month which I will then probably put into an ISA which will be compounded. The return on saved premiums should probably be compounded as well. However, as I have already beaten 6% on my second projection, and reduced risk to virtually zero, that just confirms my view that it looks like it makes sense to sell. Is there anything I need to think about that reduces my returns on selling the endowment, rather than reducing them?

I thought about discounting the saved premiums by inflation, but then the outturn amounts will be worth less in 2016 money than they are today, so I decided that it was best to stick to current prices.

dunstonh

What are the final bonuses currently on the plan?
Are these final bonuses taken into account with the projections (most are not)?
what are the guaranteed sum assureds and the current bonuses to date (not including final bonus)?

Paul_Varjak

dunstonh wrote: »

What are the final bonuses currently on the plan?
Are these final bonuses taken into account with the projections (most are not)?
what are the guaranteed sum assureds and the current bonuses to date (not including final bonus)?

I agree with that dunstonh. In 1999 my Prudential policy would have paid out £22,959 upon death (including final bonus). I got an illustration (in 1999) of the plan value at maturity (2016) and it was just £23,400 (@ 4% growth rate).

At first I could not understand these figures and wondered if the discrepancy was due to the exclusion of the final bonus from the illustration. I checked with Prudential (who were unsure why either) but eventually agreed that it was the exclusion of the final bonus from the illustration.

And Prudential seem to have very high Final bonuses. In 1999 the sum assured and guaranteed bonuses were just £8,626.73p and the final bonus (not guaranteed) was a whopping £14,332.50p! That was for a policy that was 28 years old at the time. Even today, the final bonus is not what is was in 1999 - now being 13952.50p.

EdInvestor

In 1999 the sum assured and guaranteed bonuses were just £8,626.73p and the final bonus (not guaranteed) was a whopping £14,332.50p! That was for a policy that was 28 years old at the time. Even today, the final bonus is not what is was in 1999 - now being 13952.50p.

Have you got the percentage figures for the TBs Paul?

It's a useful comparison, given that the Pru is the ONLY insurance company that actually correctly anticipated the market crash and repositioned its WP fund investment mix at the right time.

WP policies at some of those that didn't (eg Standard life) will sadly never recover

saxmund

Dunstonh, here's the info as at 31 Dec 05.

Basic sum assured £8721
Total bonuses added to date £3573

I gained only £108.70 in bonuses in 2005, and the final bonus rate that year was 64%.

There is no indication in my most recent Red Alert letter that final bonuses are excluded - it says it's a projection of what the plan might be worth when it matures, there's nothing in the notes to say that bonuses might be payable on top, and given that the value of bonuses over the last 15 years has only amounted to £3573 I can't see how it would reach £20,000 in 9.5 years without final bonuses being factored into the projection.

However, I will phone L&G to confirm.

saxmund

I've had a go at compounding, which I think gives me

Based on Sale of endowment

Policy value 10300
Return on above 7047
Saved contributions 4078
Return on contributions 1287
Total 22,712

Again based on a return of 5.5%, compounded monthly.