Removing Waiver Premium and Critical illness cover from Endowment

bumblebee5

I currently pay £82 ish per month into an Endowment Plan, which matures in 2020, with Friends Life (was Winterthur, and someone else before). The original mortgage was for £43k. I do not have a mortgage now, and have been looking at using the Plan as a savings means. I am aware it is currently on a 'red' alert and will not pay out as initially sold to me. I have looked at it several times, over the last few years, hoping things are going to improve. The latest shortfall (if 4% growth!!) is about £27k, if I reduce the payments.

My questions are:
If I reduce the Waiver Prem and Critic illness - other than less money to pay out each month and of course no Critic cover, will I lose out in any other way? Any other issues?

Friends Life said I could stop paying in - any downsides?

Any other questions or solutions I can ask Friends Life?

Any other advice please?

Many thanks

geewhiz

If they let you cancel the Waiver and Critical Illness but still pay the endowment premium you will lose those benefits but it will make no difference to the maturity value.

If you are stopping paying the full premium you should get a surrender value quote and illustration of maturity value assuming no further payments as you may be better off just taking the value now and investing it somewhere more profitable.

bumblebee5

Thanks for reply geewhiz, but what benefits am I likely to lose if I don't pay any more Critic illness and waiver?

What would you consider is decent value for surrender value quote? I have no idea what to base it on!

dunstonh

Just noting that any changes with the policy with just 7 years to go would turn it into a non-qualifying policy and make the gains subject to tax potentially.


Also, by stopping the CI cover and waiver, you do not increase the investment amount. The premium would change. That also assumes Friends Life will allow a change.

What would you consider is decent value for surrender value quote? I have no idea what to base it on!

It is contract specific. So, no way to compare. However, the penalties typically reduce as you get closer to maturity and some even stop at a given year (i.e. 5 years to go). So, sometimes its best to wait until a future date.

bumblebee5

Thanks dunstonh, I will call Friends and have a chat with them about it first, they have said I could stop WI and CC and continue policy.

Also, what do you mean 1. about if the policy turned into a non-qualifying (qualifying for what?) and 2. the gains being subject to tax potentially? sorry if being thick but don't understand!

kingstreet

Is it unit-linked, or with-profits?

These are qualifying policies, so the proceeds at the end of the term are free of income and capital gains tax.

If you make an alteration close to the end of the term, you could make the policy "non-qualifying" and lose its tax-free status.

More here;-

http://www.hmrc.gov.uk/helpsheets/hs320.pdf

bumblebee5

More info now after speaking with FL, my policy is:

Current surrender value today is just over £18k. Projected at 4% maturity estimate is just over £27k.
Qualifying status on death or maturity (I understand tax may be payable on difference between what I paid in and amount paid back, if I stop policy).
No penalties if cash in or stop.
Unit linked - what does this mean?
Person at FL said other option is to continue to pay £82 per month, and stop CC and Waiver, and money will buy more units for policy - what does she mean?

How can I find out where Friends Life invest their (my) money at present?

Is it a good idea for premium to stay same, and buy more units for policy?

Now even more confused!!

bumblebee5

Thanks kingstreet, will look at the HMRC stuff.

kingstreet

bumblebee5 wrote: »

More info now after speaking with FL, my policy is:

Current surrender value today is just over £18k. Projected at 4% maturity estimate is just over £27k.
Qualifying status on death or maturity (I understand tax may be payable on difference between what I paid in and amount paid back, if I stop policy).
No penalties if cash in or stop.
Unit linked - what does this mean?
Person at FL said other option is to continue to pay £82 per month, and stop CC and Waiver, and money will buy more units for policy - what does she mean?

How can I find out where Friends Life invest their (my) money at present?

Is it a good idea for premium to stay same, and buy more units for policy?

Now even more confused!!

A unit-linked plan sees your premiums used to purchase units in a particular investment fund. The money in the fund can be used to purchase assets, such as equities (stocks and shares), gilts, property etc, depending on the type of fund.

WL policies tended to be invested in the Unit Fund, which is a kind of three-way managed fund, the underlying assets being equities, gilts and property, in varying proportions.

A unit-linked fund is more transparent than it's with-profits alternative. On a given day, you know how many units you have in the fund and the bid price of a unit. In that way, you know exactly what your investment is worth.

If (for example) you pay £100 per month and £85 is used for savings and £15 is used to buy protection, if you remove the protection, the options would be;-

- continue paying £100 and use all that for savings
- reduce the payment to £85 and continue saving at the old level.

This alteration is what could give rise to the tax change referred to.

The provider should be able to tell you what fund your money is invested in and what makes up the underlying assets of that fund.

Deciding what to do is down to you, I'm afraid. You need to consider how the plan has performed, how it will perform in future, the tax implications of your actions and how you could invest elsewhere, as an alternative.

bumblebee5

Thanks for all the replies, very helpful. Have not made final decision, as still waiting for predictions, on paper, from WL!! Not efficient at this present moment!

HMRC site very helpful and allowed me to phrase questions to FL so I got the answers I sought!

Thanks to all.:T