Paid Up Endowment options

hippo54

I have a 25 year low cost endowment with Zurich due to mature in March 2018. I've had information from them about the options and likely returns if I surrender the policy now or keep it until maturity or make it paid up now.

I don't want to surrender the policy but the difference between making it paid up now and keeping up payments until the surrender date seems to shows that I would be better off making it paid up now.

An Illustration shows paid up value as £16,600 and value if I keep paying in as £18,900 - difference of £2,300. My monthly payments are £47 so over the time left to maturity I'd be paying in £,2900! I don't need the life cover attached to the endowment and I have paid off the mortgage.

I'd like to know if there is any downside to making the policy paid up now otherwise it seems the best option to me? Many thanks.

Dr_Mike_Oxgreen

May I tag on a similar question?

I've read other threads on this site that recommend against making an endowment paid-up, but those threads were about with-profits endowments. I think I understand the argument against it, because you lose various bonuses and guarantees.

However, mine is a "without-profits" endowment, if you see what I mean. It is a 25-year endowment, due to mature in April 2020 with a target of about £41k (and forecast a significant shortfall). It is currently valued at about £15k, and is invested in a 50:50 split of a managed fund and UK equities, if I remember correctly. I no longer have the mortgage to which it relates, I don't need the life assurance aspect of it, and I'm sure I can think of better uses for the £66 per month.

So is there any particular reason why I shouldn't make this paid-up? If I were to surrender it, would I get anywhere near the full value of the fund?

I will probably contact Aviva and ask them for projections and a surrender value, but I wondered whether anyone has any general opinions or advice...

kingstreet

These are unit-linked contracts. The value is based on the units attached to the policy and the bid value of a unit, on the date of valuation.

Provided the charges don't increase if you make the policy paid-up, all you have to remember is the loss of the life cover, or at least a reduction in the amount payable on death.

Only you can decide if the "paid-up" option suits you best, as no-one here knows your circumstances.

McKneff

You really need to start a thread of your own to be honest. It gets very confusing when 2 people post, nobody ends up knowing which post is for who..

Dr_Mike_Oxgreen

Thanks guys. I did consider starting a new thread; perhaps I should have done so.

As it happens, coincidentally I received another "red alert" letter from Aviva when I got home yesterday. This gives a few projections, but only on the basis of keeping the endowment active. Frustratingly, it doesn't give a current valuation, although I believe I'm due to receive one in April (the £15k I quoted above was from last year).

It also gives a warning about possible tax implications of surrendering or stopping payments. Can anyone suggest what implications they might be hinting at, or is this a bit of empty scaremongering? Their vested interest is in keeping me paying in, after all!

Other than that, it seems there isn't a compelling reason why freezing an endowment of this type is generally considered a bad idea, which could be the case regarding with-profits endowments.

EMac_2

For advice on endowments you really need to speak to a qualified independent financial adviser.

With-Profits endowments share in the profits made by the insurer and attract bonus's on an annual basis and at maturity. Apart from surrender,paid-up or continue to maturity you also have the option to try and sell the policy at auction, google association of policy market makers.

Without-Profits endowments are Unit Trust Investments with life cover and as KStreet says they have a unit value depending on the fund they are invested in. Don't think you can auction these and end values all depend on the perfomance of the funds i.e. their unit value and the number of units you have purchased.

Surrendering policies can have tax implications but once an endowment has run for 10 years (i think) it becomes a qualifying policy and has no tax liability. Speak to an IFA and best of luck.