Endowment(s) surrender queries

jockob

Hi all,

I have 3 endowments with different companies covering an interest only mortgage. All are underperforming, prompting me to take stock again.

Here's some summary details:
Clerical Medical
Target =35K, Proj.shortfall @6%=1,300, SV @7/4 =10,479, Mth.Prem =111.63, Start/end =08/99-08/18
Prudential (prev. Scot.Am.)
Target =44.3K, Proj.shortfall @6%=10,810, SV @7/4 =16,855, Mth.Prem =62.10, Start/end =05/92-05/17
Standard Life
Target =23K, Proj.shortfall @6%=3,200, SV @7/4 =8,546, Mth.Prem =64.14, Start/end =06/98-06/17

Mortgage is for 101K, currently 3 year disc rate @ 5.85%

So, I've pretty much decided to surrender these and switch to repayment to cut my loses. In addition to any general advice on whether this seems to be the right choice, I have some specific questions from comments I've read in other similar threads that I wanted to follow up on also:

1. There is reference to 'good' and 'bad' endowment providers. Is there a list of these somewhere? How seriously should I consider keeping a policy with a 'good' provider?

2. There is mention of some recent (last 12-24 months) returns being very good (for instance on SL policies). Any opinion on whether recent good results is a reason to stick with a policy, or get out while the going is good?

3. I've seen the term 'zombie' policies a few times. This doesn't sound good - how do you know if you are in one or not?

4. Theres plenty of advice to calculate all the numbers before deciding on surrendering, using spreadsheets etc. Are there recommended tools for this? I can find loads, but assume some are better than others.

Thanks in advance for any feedback

EdInvestor

You need to post updated surrender values and maturity projections for a view on whether it's worth keeping these endowments. Of the three, the Scot Am is likely to be the best performer, the other two are mediocre, but not zombies. Ask SL if there is any "mortgage promise" amount attached to the policy.

You may wish to try to sell them: try here: https://www.apmm.org

This gives an independent view on their value.

dunstonh

Std Life endowments are not mediocre. They are a provider that straddles both good and bad. CM, if unit linked offers greater potential than their With Profits (which is rather naff). Scot AM are generally very good.

cooper2110

Are all of these policies unit linked? If with profits, it'd be helpful to know the basic sum assured, bonuses attaching, calculation of estimated final bonuses for similar policies maturing this year.......etc...etc....

Is the life cover attaching needed? If so, can it be replaced? Are you in good health? So many questions, surrendering endowments isn't that easy.

EdInvestor

dunstonh wrote: »

Std Life endowments are not mediocre. They are a provider that straddles both good and bad.

Quite so, you may like to check your dictionary

Capricorn_One

If you *do* decide to surrender, sure it's better to try and sell them.

jockob

Hello and thanks for quick replies

EdInvestor wrote: »

You need to post updated surrender values and maturity projections for a view on whether it's worth keeping these endowments. Of the three, the Scot Am is likely to be the best performer, the other two are mediocre, but not zombies. Ask SL if there is any "mortgage promise" amount attached to the policy.

Ed, the surrender values are in original post as at 7/4/08 (SV = xxxxx). I've also listed the target amounts and projected shortfalls @ 6% return. I assumed the maturity projections equated to the target minus the shortfall? Apologies if I'm being dumb here. I can list the 4% and 8% projections if thats useful. I think there is a 'promise' eligible and will confirm.

I'm quite surprised that you think the Scot Am one is likely to be best performer as thats been red since they introduced warning letters and currently has a shortfall of nearly 11K on a 45K target.

Thanks for the tip on selling on - I already picked that up from one of your helpful replies to another post.

cooper2110 wrote: »

Are all of these policies unit linked? If with profits, it'd be helpful to know the basic sum assured, bonuses attaching, calculation of estimated final bonuses for similar policies maturing this year.......etc...etc....

Is the life cover attaching needed? If so, can it be replaced? Are you in good health? So many questions, surrendering endowments isn't that easy.

Cooper2110, these policies are in both with profits + unit linked funds. There is life cover that I would need to replace if I surrendered them. I was in good health until I started trying to figure this out . I will look out the other details and post back.

cooper2110 wrote: »

So many questions, surrendering endowments isn't that easy.

...tell me about it.

cooper2110

I would still be wary about surrendering or selling on with profits policies as there is a potential for a final bonus that you will lose if you rid. These "potential" bonuses aren't included in any projection red letter that you may receive, and depending on this, the provider and the performance, "may" help you to meet the original targets set.

jockob

My mistake, the Clerical Medical endowment is unit-linked only - no with profits. Is this a big factor in whether to consider keeping it or not?

cooper2110

In basic terms, with profits policies "aim" to achieve a maturity/terminal bonus which could give the maturity proceeds a decent bump up, depending on the company's performance of the fund. This bonus is not guaranteed, but generally the likes of the companies you have the policies with aren't too bad. It's difficult to say what level of terminal bonus you'd be likely to get as you have a while until maturity, but if you surrender, you'll get none!

So, whereas with unit linked you are pretty much just reviewing the performance as whatever it is worth, is what it's worth. With with profits, there are some hidden "potential" benefits that are being lost by surrendering.

dunstonh

jockob wrote: »

My mistake, the Clerical Medical endowment is unit-linked only - no with profits. Is this a big factor in whether to consider keeping it or not?

A massive difference. The CM with profits fund is poor but the unit linked range will give you a choice of investment areas with a closer alignment to the performance of those sectors.

just picking one fund from random, the CM UK equity manged fund that has perfomed at:
2007 : 3.97%
2006 : 12.48%
2005 : 22.02%
2004 : 12.87%
YTD is down 7.66%

So you can see that for 3 of the last 5 years, it smashed the 6% projections. Its grown by 77% over the last 5 years which is more than the higher projection rate. The fund isnt great as it virtually matches sector average but it show the increased potential a unit linked fund has over the with profits fund.