Endowments: Sell or Keep?

decadentlywasted

Hi everyone,

We have two endowments - a 20 year one that's half way through its term (current value £8.5k, payments £80 a month, target amount £28k, predicted amount at maturity £28k) and one that's 4 years from maturity, out of a 25 year term (current value £15k, payments £30 a month, target amount £23k, projected amount at maturity £17500). Would it be worth selling them and using the money to reduce my existing mortgage? I'm more tempted to cash in the £80 a month one because of the long time left to maturity, but not so with the £30 a month one (even though its way short of its target, over the next 4 years it's cost me £1500 in premiums but it'd be worth £2500 more than it is now).

I've done some rough calculations and it looks like cashing in, using the money to part repay the mortgage and then using the £110 a month saving in premiums to overpay the mortgage is the best option. I'm a bit concerned that there may be aspects of this situation that I haven't considered though, so any comments would be welcome. Thanks.

EdInvestor

Post some info

Guaranteed sum assured
Declared bonuses
Surrender value
Monthly premium'
Maturity date
Maturity forecasts
Interest rate payable on mortgage

decadentlywasted

I'll dig out the policy docs tonight and put some info up tomorrow. Cheers.

decadentlywasted

Here’s the details of the policies:

Norwich Union:
Guaranteed sum assured £23000
With profits benefit £7912
Total bonuses £6244 (up to Jan 2007)
Surrender value £14418 (today)
Monthly premium £30
Maturity date 20 Jan 2011
Maturity forecasts (feb 2007) £17400 (4%), £18200 (5%), £18900 (6%)

Plus there’s a “promise” of up to £2200 towards the shortfall, subject to there being sufficient reserves.

Prudential – home purchaser plan. This is a 50:50 split between with profits and investment linked clusters:
Guaranteed sum assured £28780
Declared bonuses (last statement july 2006 – details up to dec 2005) basic units 2877, previous bonus units 219, new bonus units 51. Managed units 428.
Surrender value £9530 (today)
Monthly premium £80.40
Maturity date 19 June 2017
Maturity forecasts (Dec 2006) £22200 (4%), £26300 (5%), £31100 (6%)

Interest rate payable on mortgage 4.95% fixed for two years.

I hope this information helps.

decadentlywasted

Added up to date surrender values.

dunstonh

What are the current terminal/final bonuses on both? That is important as they are not included in the projections for either of these providers and both of them are good enough to have some.

The Pru plan is certainly good enough to hit target and give a surplus with those figures given so far. They do have a 100% track record to date on maturity as well. 6% is well within the reach of this plan.

NU will be closer but with the mortgage promise and final bonus it could hit target. Plus you have the special bonus coming from the orphan asset distribution. There is a good chance this could hit surplus but it will be close to target.

decadentlywasted

Thanks for that - much appreciated. I'll ask what the current final bonus figures are and post them.

I must admit that I'm surprised - I just assumed that selling them and using the premiums to overpay my mortgage would be a better option.

What's the "special bonus coming from the orphan asset distribution?" Never heard of that.

decadentlywasted

Hiya! Current terminal bonuses are:

NU - £420 for every £1k of sum assured (£7912). Apparently, this figure is included in the current maturity forecasts.

Pru - 50%. Again, part of this is included in the current maturity forecasts - £1412 worth.

dunstonh

NU - £420 for every £1k of sum assured (£7912). Apparently, this figure is included in the current maturity forecasts.

It wasnt on last year's bonus statements. Indeed, I just checked a copy from a enquiry I made recently and its clear that the final bonus isnt included. Plus £420 for every £1 is far too high. 42% of the sum assured would be closer to the mark (£0.42 per £1 of sum assured).

Pru also dont include it in maturity projections either. That has been evident on projections given on this board in the past as well.


NU and Pru are both in discussions to release orphan assets (unclaimed money). This is likely to happen in 2008 with NU.

decadentlywasted

Oh, that's what I was told when I spoke to them earlier - the projected figures included elements of final bonuses. Also with NU, the text under the projected figures says "this projection takes into account the actual preformance of your policy up to 31 December 2006, including any final bonus." Maybe I'm misunderstanding either what I've been told or what I've read - or both!

Sorry about the confusion re. the £420 for every £1 - it's £420 for every £1000 of sum assured - I shouldn't be lazy and use k as shorthand for 1000.

Assuming for a moment that I've got the terminal bonus rates right, what difference would it make to my decision about selling or keeping the policies if the current terminal bonuses aren't included in the figures? Would that swing my options more in favour of keeping the policies or more in favour of selling?

You know, I thought I was pretty financially aware - until yesterday. The more I know, the more I realise how much more there is still to know! Thanks for taking the time to have a look at this - much appreciated:beer:

EdInvestor

decadentlywasted wrote: »

Norwich Union:
Maturity forecasts (feb 2007) £17400 (4%), £18200 (5%), £18900 (6%)
Plus there’s a “promise” of up to £2200 towards the shortfall, subject to there being sufficient reserves.

If you surrendered the policy now and used the lump sum to reduce the mortgage, also increasing the monthly mortgage payment by the endowment premium amount, you would end up with 19,084 at maturity.Which company was this policy originally with? NU itself or General Accident/Commercial Union? Only if it is the latter two would you be eleigible for an orphan assets windfall.


Prudential – home purchaser plan.
Maturity forecasts (Dec 2006) £22200 (4%), £26300 (5%), £31100 (6%)
[/QUOTE]

If you followed the same procedure with this policy the amount you would get back at maturity would be 27,817.

I would suggest you seek quotes from the TEP traders on selling these two so as to get some further info as to their likely value.

Go to this site:
https://www.apmm.org.

There is no 'missing' TB element from the S/V or forecasts to my knowledge.