Endowment to Cash or not to Cash

JulieJulie

Hi There

Have seen a few other asking the same question, so hope you can help.

I have an under performing Standard Life End and have spent a couple of years now pondering on whether to cash or not.

Maturity date 21st May 2016 orig a 25 year term to cover £38,500

Current Value: £12.169.10 Final Bonus £1527.60 Total Curr Bal £13,696.70
Min payout on maturity £18339.56
Monthly Premium £49.90

Bonus added this year (Feb 08) £60.12 Previous years £5766.44
Yearly bonus was 0.5% on sum assured 0.25%

End Promise could be between £3120 - £4680 or could be nil no guarantee.

Surrender value inc final bonus £13797.60

Illustrations 3.75% - £16900 / 5.5% - £19400 / 7.25% - £22200

When Standard Life started warning of shortfall a few years ago I started making overpayments on mortgage to meet shortfall. But as shortfall keeps growing year on year I think I need to revise my plans.

I have reduced my mortgage balance to £36,000 so far but if I carry on with same overpayment I am still looking at a good few thousand shortfall.

Am on a 4.74% fixed mortg. until July '11 (only bit of good news) Was possibly thinking of doing 10% annual overpayment to end of product term. Investing in a high interest bond or something in the interim, making a lump sum overpayment with remaining end. proceeds at product end time. If I then carried on with current mortg payments rather than what would be a reduced amount keeping within overpayment rules, I may come up smelling of roses. What do you think or have I gone off at a wrong tangent.

Level Term assurance would be between £8 - £9 to cover me & hubby.

Would value any expert advise. Many Thanks in advance

Julie

dunstonh

Either you have mistyped or you have one of the many examples of SL projections being totally wrong.

Min payout on maturity £18339.56
Illustrations 3.75% - £16900 / 5.5% - £19400 / 7.25% - £22200

So, the minimum value on maturity is higher than a projection at the lower rate? That is impossible (but often the case on SL projections).

Can you verify the figures to make sure it isnt a typo first?

JulieJulie

Hi

Have double checked all figures on surrender quotation and I have typed them correctly. Standard Life finished for the day but I can query with them direct tomorrow if you think they have made an error.

Now you have highlighted this query I have just checked these quotation projections on my annual statement and even though they are the same growth percentages, the "what your plan might be worth" figures are even higher than the figures quoted on the surrender statement?

Thanks for your help

Julie

dunstonh

I have seen many SL projections where the lower growth rate is lower than the minimum maturity value. So, its not unusual. It tends to happen on the older SL plan versions where they are unable to give a current value and have to project from the surrender value. That causes it to have a lower value than is likely and in some cases lower than is actually possible.

The only thing that concerns me is that I havent seen an SL statement under project for a while. About a year or so ago they upped the lower projection figure to match the minimum guarnteed maturity value so for you to have one now that shows a lower value than is possible is a surprise.

Can you post your basic sum assured (the lower sum assured figure to which bonuses are added to)?

JulieJulie

Sum Assured before bonuses added £12,513

JulieJulie

Right have just gone backwards and forwards through annual statement and surrender pack again. Have worked out why I am making you scratch your head. I have just found a one line paragraph printed on the back of one of the sheets in my surrender pack. The growth figures I have given you are the paid up illustration figures. So sorry I overlooked it loads of times thinking it was part of the header.

To hopefully make more sense the figures on my annual statement are:
3.75% - £21800 / 5.5% - £24,800 / 7.25 - £28,000

I am so sorry to have confused you. Have no idea how it's managed to print that way. I'm not really a dumb broad making silly mistakes. You'd think these big companies would dispatch their paperwork in a ledgable order!

dunstonh

You'd think these big companies would dispatch their paperwork in a ledgable order!

Its an insurance company. Need I say more?

To hopefully make more sense the figures on my annual statement are:
3.75% - £21800 / 5.5% - £24,800 / 7.25 - £28,000

Obviously we dont know future returns but SL have been scraping at just over the 7% mark (including final bonus). No reason to think that will fall back much on the unitised with profits plans but yours is conventional with profits so it may be better to err on the mid rate. They do have a habit of boosting the final figure on maturity but its probably best not to rely on it.

So, that would put the mid figure of £24,800 plus £3,800 mortgage promise value making a guidence figure of around £28,600.

You have about £3800 left in monthly premiums (£49pm premium minus £9 for cost of replacement life cover so £40pm net figure used). Ironically, thats about the level of the likely mortgage promise value.

Surrender now and you get £13,797
Keep and use the above assumptions and you get £28,600.

The difference is £14,803 and to get that difference has cost you £3800 so the net benefit of keeping the plan assuming mid rate return is £11003

There is a second stage which involves surrendering and using the surrender value to repay the mortgage and working out the revised costs on that method to see if that makes you better off. I will let you take the above in first plus I need to get some things done. If I am lucky, Ed will beat me to the calculation on that side as I am sure she has a spreadsheet for it

EdInvestor

JulieJulie wrote: »

3.75% - £21800 / 5.5% - £24,800 / 7.25 - £28,000

If you surrendered the policy now and used the lump sum to reduce the mortgage, also increasing the mortgage payment by the amount of the endowment premium, then your guaranteed no risk return at maturity would be 25,805.

That's higher than the likely return of the WP fund, though you might get a bit extra from the mortgage promise.

Personally I'd be wanting a higher premium to take a risk, not a return similar to a savings account.

JulieJulie

Many Thanks to you both. I thought my thinking may be along the right lines. I just hadn't got a clue on how to calculate things going forward. You obviously have the know how. Am most grateful for your input.