Standard Life

inky_2

We took an endownment policy out with Standard Life prior to 1988. Told by company who took over from the brokers who sold us this policy that we had no redress due to them not accepting liability for advice previously given by our former broker. Also said no point in going to FSA because it is prior to 1988.

Now Standard Life are saying that after 2006 policies will not be entirely covered by the guarantee. Our policy matures in 2008 so we cannot win???.

TrickyTrotter_2

Standard Life are making a habit of continually disappointing their policy holders, and that's before they de-mutualise and have to keep shareholders happy. This is a slippery slope for them.

dunstonh

It should be pointed out that not many providers gave any sort of guarantee so standard life is bringing itself inline with other providers.

Not that it is any comfort to any policyholders.

Milarky

The reports in the FT suggest that this will actually 'look good' for the 'bottom line' - by making £100m pa cash flow available that would otherwise go into funding the 'Promise' - and that is why they are making this announcment.

More cuts to come - well that's par for the course..

I'm disgusted at the cynicism of this company...

Poppy9

How can you get a realistic figure of what your endowment is going to produce on maturity.

Can or should you keep paying into the endowment after maturity. Are there any pro's or cons to this?

Milarky

How can you get a realistic figure of what your endowment is going to produce on maturity.

You can up to a point! For instance your policy always has a 'guaranteed' value [at maturity] which is the 'basic sum' plus the 'annual bonuses' already added to it. If you compare this amount to the 'target value' [eg the value of the original loan] and express that as a percentage, this is a LOWEST figure. It can't be any worse than that!

This assumes

a) NO further bonuses are added in the years until maturity

b) The rate of 'final' [or 'terminal'] bonus is '0%' for a maturing policy

Now you have to start guessing what might happen between now and the maturity date...

a) [if Standard Life] some kind of windfall for any demutualisation - say 10%

b) Future bonuses: - say that the same amount as last time is added for each FULL year left on the policy. This assumes merely that the very low rates already reached can be maintained [say '0.4%' for each whole year if a Standard 'Lifer']

c) Terminal Bonus rates: Assume these continue to come down. If they were to fall at the same 'fixed' rate then they could go below zero - in theory. This is not possible and plainly unrealistic. So - certainly lower than now but NOT zero. Taking 10% 'off' each year remaining seems not unrealistic. ''Ah but 10% of what?'', you ask. That is multiply BY 90% each year going forward. Now a 25 year policy currently 'pays out' about 50%, so in a year we might assume this will be 45% [i.e. = '0.9 x 50%'] and in two years this could then be 40.5%... and so on

Here's an example for what I have in mind:

Today:
Years in force = 17 [years remaining = 8]
Basic sum = 32.5% [of the loan]
Bonuses to date = 25%

So at maturity would get AT LEAST 32.5% + 25% = 57.5% [a 42.5% 'shortfall']

If bonuses add at 0.4% x 8 years will go up by 3.2% or so...

Therefore policy gets to 60.7% [a 39.3% shortfall]

If terminal bonus is about 50% today then in 8 years it Could be about 0.9⁸ or '0.43 x 50%' or about '21.5%'

This would make the policy worth [adding everything together] something like:

'121.5% x 60.7%' = '73.75%'

Now, finally add '10%' to this [ i've assumed that '10%' added to the policy at some time will grow somewhere - either in the fund or outside - up to maturity at a similar rate and therefore will equate to '10%' of the final value anyway!]

'110%' x '73.75%' = '81.1%'

Based on this [slightly contrived] example, the final value would be above '60%' but probably no more than '80%' of the loan value

Can or should you keep paying into the endowment after maturity.  Are there any pro's or cons to this?

In the case of Standard Life it is possible to purchase a qualifying investment [a 'bond'] in the with profits fund between now and 2006 - in order to qualify for the 'windfall'.. but why would anyone getting out 'today' [or near future] who already benefits from more 'smoothing' [a higher percentage of 'final' bonus] than will be available in any subsequent year [as 'final' bonus rates will just keep coming down as described!] want to get back in with the sharks?

In general a policy 'matures' and is paid out' and that's that! After all, the original purpose of most endowments was to pay off a loan at a fixed time - so reinvestment was not expected [or was it?]

Finally, if you work out the 'rewards' [as above] and compare this with the current 'surrender' value then please remember - if the insurer does not tell you, which I think they are supposed to - you SHOULD be able to get a fair amount MORE than this by sell [or 'trading'] the policy via a broker.. So [unless DD takes issue] your should only surrender a policy where the traded option is unavailable [eg where it does not meet tradable criteria on value and term]

dunstonh

Finally, if you work out the 'rewards' [as above] and compare this with the current 'surrender' value then please remember - if the insurer does not tell you, which I think they are supposed to - you SHOULD be able to get a fair amount MORE than this by sell [or 'trading'] the policy via a broker.. So [unless DD takes issue] your should only surrender a policy where the traded option is unavailable [eg where it does not meet tradable criteria on value and term]

If you do decide to call it a day, then you should always investigate the traded endowment route to dispose of it as you can often end up with more. Although not as much as you would have done a few years back. You should always make sure you have alternative life cover arranged (if required) before you trade/surrender in case medical history has changed or your life premiums have gone up more than you realised. You should also be aware that some endowments with critical illness cover may be offering much better terms than current critical illness plans and that it may be just as well to keep the endowment for the CI cover, life cover and then some sort of payment at the end and just convert the mortgage to repayment.