The right thing to do with endowment?

fitzmum

Hi guys,

We have a standard life endowment which finishes in 9 years time. Its meant to pay off a 34k mortgage but currently has a shortfall of around 12k.

The surrender value is about 12k and we pay £42 p/month

We have a personal loan for another 9 years which is for about 12k and we pay £183 p/month

I have calculated that if we switched the 34k onto capital repayment, surrendered the policy and paid off the loan with it we would still be better off by about £45 a month (not paying the £42 a month endowment then either)

Would this be a sensible thing to do? I know we would need life cover for the 34k but to me this ensures that the motgage will be paid off and means more money in our pockets every month.

What do you think?

dunstonh

Many of SL's endowments do not include the terminal bonus accrued to date in the projections. Is yours one of these?

Also, most SL endowments have a mortgage promise value. An amount SL will pay out on maturity on top of the value if there is a shortfall. The highest mortgage promise value we have seen has gone into the tens of thousands but its typically around the £2000-£5000 range.

What projection rates did SL use on your projections. They have a habit of changing their rates every year or so. Sometimes low, sometimes medium. Often understanding their performance.

fitzmum

Hi - thats the medium projection - 6% i think

The terminal bonus will be on top yes, but the statement doesn't say anything about a shortfall top up at all....

dunstonh

I dont know why SL dont show the mortgage promise value on their illustrations. They give the detail in the copy of the information they give us. The the adviser that is the agent for your policy (either the original adviser or one that you have since appointed) will have this information. Or you can phone SL up and ask them the mortgage promise values (its a range between two points and they should give you two figures).

All that said, clearing the Personal Loan does look attractive as it gives you certainty and reduces your debt burden which is the right thing to do at the moment.

fitzmum

Ah, hang on tho - we did get 3k compensation from them after going down the old misselling route - will this affect the shortfall top up?

dunstonh

I dont believe that SL remove the promise on redress payment. Only Pearl do that.

I think you should find out the promise value. if its enough to close that £12k gap more or less (statistically unlikely) then it may be worth keeping. If you can clear the loan, convert to repayment and have surplus funds each month (which you can then ISA perhaps?) then that would be a very nice position to be in.

fitzmum

Hi - just called them - its between £2800 - £4000

dunstonh

If it was me, I would clear the loan on those figures.