Cashing in Endowment policies

Dellydrawers

We have recently remortgaged for the last two years of our mortgage term. We have an interest only mortgage and two endowment policies which will pay the mortgage in two years time. Whilst checking our endowment policies the combination of both policies at the moment will pay out approx £101,000. To pay off the mortgage we need approx £68,000. My question is do we surrender out policies and pay off the mortgage and have over £30,000 in our pocket.?? We are worried how the economy will perform with the Covid situation and also leaving the EU in December. We know we will have penalties to pay by cashing in early and also a penalty to pay to the mortgage company for paying off the mortgage early. We know we will have to sources life insurances as these will end  if Endowment is cashed in. The premiums for the mortgage and endowment policies for the next two years is nearly £9,000.

Old_Lifer

To get a proper answer you would need to say what kind of endowments you have.    You could have a conventional with- profits policy,  or unitised with-profits   or unit linked.  Take a look at your annual statement.   Does it mention  bonuses,  bonus units or just units ?

If it is unit-linked,  since it is mortgage related   it is probably linked to a managed  fund.  It is worth whatever is the value of the units  whether you surrender now or wait to maturity

If it is  conventional  with-profits    the sum assured and annual bonus are guaranteed at maturity but any terminal bonus may change  (up or down)  by the time your policy matures.    If you surrender your policy early, you will receive the current surrender value of  the policy,  the surrender value of the annual bonuses attaching to the policy   and the surrender value of the current terminal bonus applicable to the policy.

If your policy is unitised with-profits and you surrender early, a market value  adjustment could be applied to reduce the value of the units   but this would not be applied at maturity.   As above, you would receive the surrender value of any current terminal bonus.

The risk you face  is that markets may fall or rise  before maturity   but since  only  part  (perhaps half)  of a typical with-profits  fund is invested on the stock market nowadays, any fall in terminal  bonus rates is likely to be less than the fall in the market index.  Similarly,  a managed fund will be only partly invested on the stock market.

Dellydrawers

It's an accelerated investment mortgage plan. It's unit linked to a managed fund. It's worth whatever the value of units are. They are capital units and accumulation units

Thrugelmir

How much have you contributed over the years to the policies so far is another of looking at the situation? £101k is a large sum, however £4,500 p.a. is likewise. Perhaps better invested in your pension plans. 

Old_Lifer

Capital units  are usually encountered in the first year  or two of the policy.  They are used to pay the set-up costs.

Dellydrawers

I am almost 50 and my husband 57. My husband is in transport and I am pre school, so relatively stable jobs ( in this current climate).