Surrender Value is more than maturity Value- can this be right? Help!

tingly

I apologise in advance, this is a bit long winded because i have tried to put in all the information, in the hope someone can help me.


I have a full endowment plan (not traditional low cost), which is not linked to a mortgage any more.
it was with the refuge-who are now royal london.

I took it out in 1987 over 23 years, so it is due to mature in 2010.

I pay £248 a month. It has a sum assured of £57,000, and total bonuses so far of £51,598.
( although i pay in nearly 3 k a year, the annual bonuses run to approx £540 a year now)

I have had a surrender value of £105,000, the best offer on a tep has been £106,500.

I have 30 months left to pay at a total premium of £7440( so if i was to sell it , i spose i have to add together 106,500 and £7440 and two years interest in the bank, at about 5%per annum to give me roughtly £125,000)

I have rang up royal london and asked them last years terminal bonus on a policy identical to this , and they state it was 12.6% of sum assured. so on 57,000 , this means £7182, together with final bonuses of £51598 and roughly three years of £540.

to me this makes £117,000 which is less than surrendering it!!

Please help,am i missing something, or am i better off surrendering it?

GH

A couple of years I ago I had an endowment policy maturing and about 3/4 months beforehand I had requested a surrender value. At the time of maturity the sum I got was actually less than the surrender value previously. I was livid and rang them up for an explanation to be told that it was a function of falling bonuses.

Milarky

Terminal bonuses should also be paid on any accrued annual bonus. That makes your policy 'worth' 122K

i.e. (57,000 + 51598) x 1.126

Also your current surrender value is 105K

I've got a feeling the rate of 12.6 you were given might have been that applied to your policy on the day you rang up - not the 'at maturity' figure

It's worth checking those points with the endowment people:

1) terminal bonus is applied to what, exactly?

2) terminal bonus for currently maturing polices (25 year) is what, exactly?

EdInvestor

tingly wrote: »

Please help,am i missing something, or am i better off surrendering it?

You may well be. Although every policy is different, at most insurance companies including Royal London endowment maturity values have been falling for some years.

See chart below:

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/05/12/cmendow12.xml

tingly

thanks for your responses. i checked with the royal london, and the terminal bonus of 12.6 is what it would have paid if it had matured last year on a 23 year policy. they also confirmed the terminal bonus was applied to the sum assured only and not the accrued bonuses.

Its strange isnt it. Looking at the replies i have had so far, i think i will "Deal"!!!-- its starting to feel a bit like playing that game, rather than proper financial planning!:rotfl:

dunstonh

most insurance companies including Royal London endowment maturity values have been falling for some years.

They have been rising for quite a few years now but Ed misreads the charts in that article every time.

tingly

DunstonH,
i wonder if you'll know the answer to this, being an adviser and all

that telegraph chart shows 50quid a month over 25 years, i'm paying 248 a month, albeit over 23 years, so to my calc, id be getting 200k back in 3 years-- which cant be right cos sum assd and bonuses are only just over the 100k mark, + 3 more years of an annual totalling probable1500 quid, - so to make 200k the terminal bonus would need to be 400 per cent of the sum assured more or less==

royal london themselves say last years bonus on the same plan is 12.6,
so realistically, looking at the figures i gave to you before, do you reckon the terminal may go up enough to beat the surrender value + the premiums i have yet to pay+ the interest it will make in the bank?
would be grateful if you could give insight , i always thought you should keep these things running, but maybe not?

ffacoffipawb

Milarky wrote: »

Terminal bonuses should also be paid on any accrued annual bonus.

Not necessarily. I used to be in the unfortunate position of working for a life company which was a hotch potch of other life companies.

Some with profits policies paid out a terminal bonus on the basic sum assured only.

Some paid terminal bonus on the accrued bonuses only.

And some paid terminal bonus on the basic sum assured and the accrued bonuses!

This inconsistency was across one company!

I was pleased to take the redundancy payout when offered!

dunstonh

If the surrender value is higher than the current position then it suggests that you are not being supplied with the current terminal bonus data.

I never rely on data given on the phone. Insurance company front line call centre staff are (on the whole with some exceptions) limited in skills and knowledge and if they hear one thing about one policy they can have a tendancy to apply it to others. For example, the 12.6% could apply to a refuge or united friendly plan but not a Royal London. Or it could be a 12.6% increase on previous year.

Before you make any decision, get the data in writing.

EdInvestor

dunstonh wrote: »

They have been rising for quite a few years now but Ed misreads the charts in that article every time.

At the turn of the century most companies' policy values were made up around 50% of guaranteed value and 50% terminal bonus. From around 2001 as the stockmarket collapsed, terminal bonuses fell, in many cases dramatically.Guaranteed bonuses continued to be added to policies but at much lower rates.As a result, by around 2005, many policies had diminished in total value by as much as half and the terminal bonus left was very small.

Since then that very small TB may have risen a bit, but nowhere near enough to compensate for previous falls. Hence the charts show a continuing fall in maturity values.

dunstonh

The charts show a fall because they are a rolling 25 years. The year from 25 years ago is replaced with last years. Returns were higher back then (mainly due to higher inflation rather than anything else). So, if you replace a 15% year with a 6% year the rolling 25 year figure will appear to go down.

However, those people who were not invested 25 years ago are not going to match the table so its pointless. You have to look at current potential and not what happened 24/25/26 years ago.