RSA Low Cost Endowment - surrender?

BeckyMellor225

OK, I have tried to work out what to do with this policy based on existing threads but they are quite old and I can't find quite what I am after so I have started a new question. Apologies if this is a repetition but when I started seeing the word Zombie used I got quite concerned. I took this policy out in the days of 14% interest and it has not lived up to it's promises. I have other life cover through work so do not especially need the cover inherent in this policy.

Here are the details:

Low cost endowment policy

Maturity: 9.05.2016
Monthly contributions: £64.20
Life cover: £44,600
Guaranteed Basic Sum: £14,588
Bonuses so far: £5,050
Bonus 2011 (last one I could find info on): £48.97

I have 3 years left to go but would I be better cashing it in and paying off a chunk of mortgage (I have an offset type mortgage so no early repayment costs and interest rate is 3.9%)

the surrender value (today) is £24,074 so way below the £44,600 it was aiming for with only 3 years left to go

dunstonh

The figures you have given indicate a final bonus. Can you let us know what it is as it is missing.

BeckyMellor225

it just says a final bonus may be added to your plan at maturity, if you cash in early or on death of life/lives assured. the amount is not guaranteed.

would I need to look up the original policy or call them for specifics?

dunstonh

You will need to ask them how much the current final bonus as. There clearly is one but it is an important bit of information that is currently missing which prevents any judgement call being made on whether it is worth keeping or dumping.

BeckyMellor225

they say that final bonus is currently 46% of (basic sum assured plus bonus). 46% of £19k is £9k which is actually better than I expected. Apparently it was as low as 12% a while back but has been climbing steadily - 35, 40, 43, 46 - although no guarantee it will continue to do this.

Oh for a simple life - I am more unsure than ever now, but at least I have a bit more info.

dunstonh

So, if we take the £9k as final bonus, add that to the basic sum assured and add the annual bonuses, your current position is £28,638. The surrender value is £24,074. So early surrender will cost you over £4000.

Will the alternative recover that £4000 in the remaining term?

Dick_here

dunstonh wrote: »

So, if we take the £9k as final bonus, add that to the basic sum assured and add the annual bonuses, your current position is £28,638. The surrender value is £24,074. So early surrender will cost you over £4000.

More like £1700 really. £64pm * 12 * 3 years = £2300+ saved in premiums

dunstonh

!!!!!!_here wrote: »

More like £1700 really. £64pm * 12 * 3 years = £2300+ saved in premiums

I haven't included the returns the future premiums could bring. So, there is always a bit of a trade off there.

TrickyDicky101

Then there's also the interest saved if you were to pay off the surrender value towards the mortgage. That will save interest saved at 3.9% (assuming no ERC penalty).

That makes early surrender very tempting in my opinion - it comes down to how much the OP values exposure to risk in the value of the final bonus.

BeckyMellor225

Thanks everyone. I have asked for an up to date set of predictions and then will have a think. Its not as cut and dried as I thought it would be

Dick_here

BeckyMellor225 wrote: »

they say that final bonus is currently 46% of (basic sum assured plus bonus). 46% of £19k is £9k

I'm surprised to hear that the final bonus is partly based on previous bonuses. I'd have thought it'd be on the sum assured only. Dunston may be able to enlighten us further though.