Endowment Shortfall! What To Do Next?

amani_2

Hi everyone I am new to this board.

I have had my annual endowment policy statement this morning.

I bought it in 1991 with my mortgage (it is with FRIENDS PROVIDENT) I have 12yrs left on it.

The target amount is £40,300.00

This is what they say I might get back. Assuming their investments grow at:

4% £19,300.00 shortfall of £21,000.00

5.5% 23,600.00 shortfall of £16,700.00

8% 32,500.00 shortfall of £7,800.00


I have paid into the policy up to 23rd MAY 2007 £6,864.11

Cash in value 23rd MAY 2007 £7,189.90

I really dont know what to do about the policy or the shortfall.

CAN ANYONE HELP????????????

Thanks for taking the time to read this.


AMANI XXX

bagby

Hi,

Have you claimed for being mis-sold the endowment - we got our endowment policy in 1991 and we claimed mis-selling about four years ago. I cant remember how much we got back but it was a little more than we had paid in. We paid that money off our mortgage and put the rest of the mortgage on a repayment one. We have kept the endowment policy running as it acts like a mortgage protection policy (which is what we wanted in the first place) should either of us die then the mortgage is paid for. Come the end of the term of the endowment then hopefully we will get something back. We recently got a 'red letter' from the endowment company making us aware that the policy is not going to pay out the full amount but who knows what we'll get in ten years time???

amani_2

thanks bagby

yes tried to claim for the mis-selling of the endowment policy, unfortunatly due to some personal cirrcumstances, I was out of time.

EdInvestor

What interest rate are you paying on your mortgage?

amani_2

Hi EdInvestor


My interest rate on my mortgage is 7.340%

EdInvestor

amani wrote: »

This is what they say I might get back. Assuming their investments grow at:

4% £19,300.00

5.5% 23,600.00

8% 32,500.00

I'm assuming you pay a premium of around 35 pounds a month on the endowment? If you surrendered it and used the lump sum to reduce the mortgage loan, also increasing the monthly mortgage payment by the amount of the endowment premium, after 12 years you would have made the equivalent of 24,690, guaranteed.

It's pretty unlikely that FP will return more than 4-5% (unguaranteed) over the period, so you would be better to dump the endowment. Make sure you replace the life cover before you surrender, if you need to do this.

You will still have a shortfall,and the easiest way to get a grip on this at present is to increase your monthly mortgage payment so that you are overpaying the capital.Later on when interest rates come down you may look to remortgage, but leave your monthly payments the same and thus overpay more, or switch to repayment: extending the term is another option if really desperate. At current interest rates, trying to match the return through investing is a bit too risky if you are not experienced IMHO.

dunstonh

FP usually allow a switch to their unit linked funds. These offer better potential for future growth and that would make the 8% projection potentially possible.

It's pretty unlikely that FP will return more than 4-5% (unguaranteed) over the period, so you would be better to dump the endowment.

A number of the FP funds have been running in double digit returns for the last few years so the above is incorrect.

amani_2

my monthly premium is £42.11.

EdInvester how did you come to the sum of £24,690.00 (sorry not good with this type of thing) Thanks.


AMANI XXX

EdInvestor

dunstonh wrote: »

FP usually allow a switch to their unit linked funds. These offer better potential for future growth and that would make the 8% projection potentially possible.



A number of the FP funds have been running in double digit returns for the last few years so the above is incorrect.

Are you trying to be deliberately confusing DH?

I am referring to the likely performance of the FP With profits fund - as you are very well aware the large majority of FP endowments are WP, not unit linked.

How would it be good advice to switch into unit linked compared with surrendering the endowment and investing into a modern unit trust also utilitising the ISA allowance - if a risk based szolution is wanted?

The endowment will have high charges and no tax relief. The surrender value is only just over 7k and could be wholly tax sheltered immediately.

dunstonh

Are you trying to be deliberately confusing DH?
I am referring to the likely performance of the FP With profits fund - as you are very well aware the large majority of FP endowments are WP, not unit linked.

You are referring to one fund of a number that are available in that contract and can be switched into at no cost.

How would it be good advice to switch into unit linked compared with surrendering the endowment and investing into a modern unit trust also utilitising the ISA allowance - if a risk based szolution is wanted?

Very easily can be good advice as charges are front loaded and have already been paid. Surrender would involve a penalty which would not occur on fund switch and the funds are all 0.75% amc making them cheaper than unit trust funds.

Life cover is based on original age and could be cheaper than replacement life cover.

The endowment will have high charges and no tax relief. The surrender value is only just over 7k and could be wholly tax sheltered immediately.

You have no evidence to support that yet are willing to tell someone to surrender based on incomplete information.

amani, you may be thanking Ed but she isnt taking everything into account and guiding you based on partial information and assumptions which may or may not be accurate.

amani_2

I am really greatful for any advice as I am at a complete loss with this.