Endowment advice - make paid up or continue paying?

new2it

Hi, I'm in a similar situation to those above and wondered if anyone can help. My Standard Life matures in Dec 07. I pay £30 a month in, and received £30 in bonuses last year. The policy was initially meant to cover £16,500. I phoned yesterday and they said if I cashed it in now I would receive roughly £10,000. If I paid up until maturity I would receive roughly £11,500 at interest rates of 5%. (no guarantee of course.) It was a with profits policy but they don't seem to be adding them at the moment, unless that £30 was it.
I now have a very hefty mortgage, not connected to this and wondered whether I should cash it in and use the cash to pay off some of the mortgage (currently fixed for 18mths at 5.59%)
Or should I cash it in, use some to pay off some of the mortgage and invest the remainder in an ISA and savings. It seems to me that at least I'd be guaranteed some interest here. The money I would be saving not paying SL could be added to the savings to make further annual payments off my mortgage.
Or should I hang in there and hope for the best.
Any advice would be gratefully received.
Thanks

dunstonh

new2it wrote:

Hi, I'm in a similar situation to those above and wondered if anyone can help. My Standard Life matures in Dec 07. I pay £30 a month in, and received £30 in bonuses last year. The policy was initially meant to cover £16,500. I phoned yesterday and they said if I cashed it in now I would receive roughly £10,000. If I paid up until maturity I would receive roughly £11,500 at interest rates of 5%. (no guarantee of course.) It was a with profits policy but they don't seem to be adding them at the moment, unless that £30 was it.
I now have a very hefty mortgage, not connected to this and wondered whether I should cash it in and use the cash to pay off some of the mortgage (currently fixed for 18mths at 5.59%)
Or should I cash it in, use some to pay off some of the mortgage and invest the remainder in an ISA and savings. It seems to me that at least I'd be guaranteed some interest here. The money I would be saving not paying SL could be added to the savings to make further annual payments off my mortgage.
Or should I hang in there and hope for the best.
Any advice would be gratefully received.
Thanks

Standard Life projections are notoriously unreliable as they appear to project from the surrender value and not a real current value. This gives them an artificially lower projection. In addition, they do not include any terminal bonuses in the projection and assuming yours is an old long term policy, chances are you still have some terminal bonus.

EdInvestor

new2it wrote:

Hi, I'm in a similar situation to those above and wondered if anyone can help. My Standard Life matures in Dec 07. I pay £30 a month in, and received £30 in bonuses last year. The policy was initially meant to cover £16,500. I phoned yesterday and they said if I cashed it in now I would receive roughly £10,000.

Hello new2it

Were you aware that Standard life plans to demutualise next year and thus you would be eligible for a windfall? :)This wlndfall will likely consist of approx 500 quid flat rate for all members and a percentage of your policy value on top.

Now what's your policy value? It consists of the total of the guaranteed sum assured and existing declared (annual/reversionary) bonuses, plus your terminal bonus component (if any). You should be able to tell us the first two from your annual statment, and if you call up and absolutely insist ( do not take no for an answer) on being told the percentage of terminal bonus in your policy now, they should tell you. Important: Make them give you a firm surrender value as well if you don't already have one.

The way forward for you depends partly on how much of your terminal bonus is still there.If it is more than about 25-30 % of your policy value,IMHO you should consider a surrender.If it is less, then the likelihood is that the windfall will be more than that on a fairly small policy like yours and you should stay, cashing in after the demutualisation wehn the policy matures.

But going back to the calculation done for travel freak above and ignoring windfalls, what is your Guaranteed sum assured and total of declared bonuses? That's what you will get 100% guaranteed in 2007 if you keep paying the premiums. That should be your starting point.With such a short time to go before maturity and a DM in prospect it's very unlikely it would be sensible to leave - unless you still have a big TB in the policy.

new2it

Thank you Editor. I've made notes of your comments and will look at my policy when I get home. If I still have a problem, probably will, I'll get back tomorrow. By the way, what's IMHO?

travel_freak

Editor,

Huge thanks for your time and advice. You've certainly made things far clearer for me than FP managed to! I will take your advice and get some alternative quotes for life cover and then mull things over before making a final decision.

Once again, many thanks!

new2it

Hi Editor
SL wrote to me today with a few illustrative maturity values. Firstly my guaranteed value is £12015

From Febs statement: Minimum pay at maturity = 12.015
Current value = 10.216
Final Bonus = 147.70
current value (feb) 10,364

Bonuses:
added this year = 42.63
plus previous years = 5076.35
sum assured = 6,897

Note says: 'The sum assured is the minimum amount, before any bonus is added, which we guarantee to pay at maturity. The actual amount you get at maturity will be teh sum assured plus boneses and it may also include a final bonus.

Yearly bonuses: Bones rates from Feb 2004 to Jan 2005:
On bonuses already added = 0.5%
On your sum assured = 0.25%

On another page of text it says that I am invested in with profits.
Does any of this help please?

And thank you.

EdInvestor

Hi new2it

Fairly clearcut case to stay because of the DM bonus. If you took the surrender value and invested it and the monthly premiums in the bank at 4.5% over the period to maturity you would end up with about 12,500 as against a guaranteed vale at maturity of just over 12k.That's assuming you don't need to replace the life cover included in the endowment.

Your terminal bonus has alsmost gone and I would not expect it to return.However at the DM you should get a flat rate bonus of 500 quid, which will bring the value up to the savings level plus a variable rate windfall.This is based on the size of your policy (small ) and the length of time you've been a member (long )

It's too early to predict how much these variable rates are going to be but at a guess 15-20% of policy value if all goes well over the next year or so in the stockmarket.That would help quite a lot - though it still won't cover the shortfall. But definitely worth holding on for the DM and then reconsider a surrender after that, I'd have thought.

HTH

new2it

Thanks so much for your very useful advice. This makes things so much clearer. I'll hang on to them at least till DM. then reconsider. You're brill.
J