Endowment help needed please.

cslogg

I have a £40,000 endowment with Norwich Union which has around 9 years to run.They have sent me a letter telling me of a probable shortfall.It varies depending on the interest rates over the next 9 years.They have also urged me to take some action to rectify the situation.In the letter they are encouraging me to switch from my low risk low interest Provident Mutual With Profit fund to a higher risk but higher return CGNU With Profits Fund.
If I stay where I am I am guaranteed at least £23,000 at the end,obviously £17,000 short.If I surrender now I will get £14,500 but will not have to pay my monthly payments of £63 for the next 9 years but at the end of it I will be £40,000 short,and I will have to find somewhere to invest my £14,500 to make it grow alot in the next 9 years.
I realise this is probably a very familiar scenereo to many of you but I do not know what to do.
Any advise would be most welcome and needed.

Thanks for reading this far.
I hope the above makes sense.

cslogg

dunstonh

They have sent me a letter telling me of a probable shortfall

Not quite. They have told you that it will give a shortfall if certain rates of return are achieved. What the actual rate of return, plus terminal bonus on top actually pay out is something different. Remember that the projection does not include any terminal bonus already accrued.

They have also urged me to take some action to rectify the situation.

It would be prudent to assume lower rates of return and planning early can limit the cost. Remember the cost of mortgages has dropped massively so paying a little more for the savings side is not a bad thing.

In the letter they are encouraging me to switch from my low risk low interest Provident Mutual With Profit fund to a higher risk but higher return CGNU With Profits Fund.

The difference in risk is not that great. On a scale of 1 to 10 its like going from risk 5 into risk 6. The NU WP fund is far higher quality and offers far greater potential for growth over the long term than the Prov Mut fund.

NU are one of the 2 WP providers who still have very good funds and are performing very well.

EdInvestor

cslogg wrote:

I have a £40,000 endowment with Norwich Union which has around 9 years to run.If I stay where I am I am guaranteed at least £23,000 at the end,obviously £17,000 short.If I surrender now I will get £14,500 but will not have to pay my monthly payments of £63 for the next 9 years but at the end of it I will be £40,000 short,and I will have to find somewhere to invest my £14,500 to make it grow a lot in the next 9 years.

Hi CSL

Here's the contrarian view;)

If you surrender it and put the money into an account@ 4.5%, also paying in the premiums, then by the maturity date, you should have 29,912. Which is an improvement on the guaranteed amount of 23,000, but not good enough to cover the shortfall of 40k.

If you use the S/V to reduce the capital owed and then pay in the endowment premiums to the mortgage, your savings will often be larger because the mortgage rate is higher than the savings rate and is not subject to tax.

Suggest you do that calculation and take it from there.

Note that if you need to replace the life cover, you should do it before surrendering the endowment.