Surrender Endowment?

mike123456_2

I have an endowment policy with Eagle star;
Matures 17/06/12
Left to pay is £27.27 per month for another 98 months = £2672
Target Amount was £17,350
Projected Final amount @ 3% = £10,100
Projected Final amount @ 3.75% = £10,600
Basic benefit £5982 plus existing bonus £2968 = Accumulated benefit £8950
Current Surrender value £5825

I also have a further advance on my mortgage of £6000 (new kitchen) which is currently costing me £49.79 per month to repay @ 5.99% interest.

Would I be better off surrendering the endowment, using that money to pay off the mortgage and then overpaying my main mortgage account by the £27.27 and £49.79 per month that I will be saving in payments?

p.s. The life insurance benefit of the endowment is not important to me

dunstonh

So, current value (in simple terms) is £8950. Surrender value is £5825. You will lose £3125 by surrendering. To keep it going will cost you £2672 over the remaining term.

So looking at the endowment alone, it would be best to keep it.

To compare against lending, you need to see what you would save per month over the term by using the surrender value to reduce the mortgage. You will also need to convert to repayment mortgage which will cost you more.

So its really just a balancing act of comparing what you get if you keep against what you get if you surrender. Whichever offers the best value is usually the best option.

EdInvestor

Hi Mike,

I'm going to take a different view.If you surrender it now and put the 5,825 S/V in the bank at 4.5% net over the 7 years (not 8?),plus pay in the 27 quid a month you'll end up with 10,588.This compares with a guaranteed value at the end of the term of 8,950.

This is a big enough gap on a small policy to make me suggest you give up on it and use the S/V and premiums to reduce the mortgage, which will give you a better return at the interest rate level. Keep paying the other premium as well, of course.

Compensationitis

Have you made a complaint?

dougk_2

It is my understanding that most endowment companies expect 5 to 6% to be a reasonable amount. Therefore I would have thought that it is possible you will get more than the 3.75%.

I would keep it going. As your payments are only £27 month its hardly a big out going and to me its worth the "gamble".

You certainly will get out more than you pay in so risks are minimal.

dunstonh

It is my understanding that most endowment companies expect 5 to 6% to be a reasonable amount. Therefore I would have thought that it is possible you will get more than the 3.75%

If only it was that simple

Closed with profits funds are the biggest problem. Those with decent financial strength could still do fine. Whereas those weak insurance companies that had to reduce their equity holdings at the worst time to remain solvent are the problem. Many of these are unlikely to pay any bonus again or very little at best.

Also, as i mentioned on another thread, the way forward for insurance companies looks like they are going to keep the annual bonus low on conventional with profits plans (less so on unitised with profits) and focus on increasing the terminal bonus. This reduces their liabilities and improves their solvency. The end result could be the same, it could be more, it could be less. However, projections on the endowment will be even further distorted and inaccurate compared with how they are currently.