To sell or not to sell..

Honkycat

Hi,

I have a couple of endowment policies that were originally taken out to cover a mortgage in 1987. One is with Friends Provident and was originally to cover £25000..... it's now predicted to pay 15,500 at 4% a year, 16.600 at 5.5% a year etc. I've complained (actually must have been one of the first to do so... before all the companies to do it for you sprang up) all the way to the ombudsman and have been rejected.
So 5 years to run. Surrender value on 19th August was £11763. (Minimum guaranteed cash sum at maturity = £13,947).
I'm wondering should I sell an put the money in a high interest account or ISA. I pay £32 a month to the plan so I'd save this for 5 years also add in the interest I'd make and I probably come out getting more than their projected maturity value.
I've also asked a couple of companies if they'd like to buy the policy (ones recommended here) and been offered £12500 so far... which is higher than the surrender value, but not much.

Any thoughts or advice from all you good and learned people would be greatly appreciated.

Thanks,

Steve.

Honkycat

Any thoughts on this one?

Thanks for any advice,

Steve.

dunstonh

it's now predicted to pay 15,500 at 4% a year,

They are not predictions. They are example projections using a certain rate. The rate may understate or overstate the real performance of the fund.

If you have access to the FP unit linked range, then that can be a good option. However, given the age of yours that is highly unlikely as this option came about in the 90s.

The fund is weak and FP look like they are getting into bad with Resolution so future potential is likely to be reduced. By selling it, you almost cover the cost of surrender and if you are going to use the money to clear a mortgage, then that would be your best option I reckon.

Honkycat

Thanks a million.
Does the projection include what they think the final bonus might be, or would that be insignificant for the disastrous FP anyway?
Also, what is the "surrender cost"? I don't think I know about this or have factored it in to my thinking. Does it still apply if I am selling the policy to someone who will keep it going? I'm thinking more of using the money as a university buffer for my kids rather than mortgage clearance (I changed to repayment).
I'm thinking that if I put £12,000 in an ISA I might get £600ish a year interest for 5 years which would bring me pretty close to the £15,500 projection?(although it'd probably be swallowed up long before 5 years to be honest! I just like the idea of the cash being in MY bank account rather than Friends Provident's! I'm assuming the 4% projection is going to be most applicable to FP.

Thanks very much for your advice.

Honkycat

Any other opinions? I need to decide quite fast....
Thanks,

Steve.

Honkycat

Pretty please?

Honkycat

My latest offer is £12800.
Does anyone have a rough idea of how much the terminal bonus would be with FP? Would this be on top of the projections given?

Thanks.

hedgehunter_2

I am afraid that the answer is not yes or no, it is "it depends".

I have seen this question many times on posts.

Any illustration follows the same generic basis but varies between life companies because of policy values and assumed costs.

They start with what is known as the current value, which fundamentally is the current value of the policy assuming it continues to maturity and this is not to be confused with the surrender value which represents the cash in value assuming the policy is cashed in now.

The current value is increased by various rates of growth for the remaining term of the policy. From this sum, assumed future expenses are deducted to arrive at the projected value for that rate of growth.

This sum is then compared with the guaranteed benefits, and the higher of the two sums are quoted as the projected maturity value, which is why sometimes the same projected value is quoted at 4,6 and 8% where the guaranteed benefits exceed the projection at all three growth rates.

The current value will include a proportion of the current rate of terminal bonus (if the policy has one) but the guaranteed benefits will not.

This is why the answer is yes and no.

Honkycat

Thanks Hedgehunter.... so would you on balance agree that I might as well cut my losses and take the offer? The latest one seems quite good.

hedgehunter_2

It is not for me to advise you or even pass an opinion of what you shoud do. The problem is that the maturity value payable in 2012 is unknown. Whilst I would not expect the guaranteed benefits to increase much between now and 2012 the level of terminal bonus payable in 2012 is just unknown.

If the second hand market is offering £1000 more than the surrender value someone thinks that carrying with this policy to maturity is worthwhile.

Since you have converted to repayment, and if the life cover is not important to you, the question is how important is it to you to assist your kids through university with this cash by taking it now, rather than the full maturity value in 2012 whatever this may be.

You should also consider any demutulisation benefits that may be available if Friends merges with Resolution (another unknown)

Honkycat

Any other views on this before I do the deed?