Endowment(s) surrender queries

EdInvestor

jockob wrote: »

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.

Yes please post all these.

I'm quite surprised that you think the Scot Am one is likely to be best performer

I had assumed it was wholly WP< but gather it is partly unit linked which would explain the underperformance.

Note that you can sell policies with a unit linked component.Also worth noting that the surrender value of a WP policy contains accumulated terminal bonus.

Re Dunstonh's post on the CM policy, it is showing an average return of 8.72% over the past 5 years, from which you have to deduct 1% in taxes, the cost of life cover at the expensive rates prevailing when the policy was taken out, and fund charges.

The effect of these costs can be seen when you do the calculation.If you cashed it in now and used the lump sum to reduce the mortgage, also increasing the monthly mortgage payment by the amount of the endowment premium, you would end up with 36,586 at maturity, compared with their figures below.

Clerical Medical
Target =35K, Proj.shortfall @6%=1,300,

And of course you would not be taking a risk that the return would be even lower.

dunstonh

Re Dunstonh's post on the CM policy, it is showing an average return of 8.72% over the past 5 years, from which you have to deduct 1% in taxes, the cost of life cover at the expensive rates prevailing when the policy was taken out, and fund charges.

That is incorrect. the return is net of taxes and default annual management charge.

jockob

cooper2110 wrote: »

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.

Cooper2110, the trouble with this logic (to my mind at least) relates to risk vs reward. Why on earth would I choose to keep investing in policies which 'may' hit targets over a repayment option which will guarantee to repay the mortgage for roughly equal levels of monthly investment?

Given the position of these policies at the moment this feels like a compelling argument to surrender, unless I'm using faulty logic or missing something. The only reasons to consider keeping them appear to be if...

(a) The chance of there being a surplus is greater than the chance of a shortfall i.e. the potential rewards justify the risks. This is surely a fundamental investment principal. I see nothing that suggests this is even remotely likely.

(b) My figures are off, and it would cost more per month for repayment than my current outgoings. This doesn't appear to be the case - rough calculations seem to be (using a 10 year term):

- current = £520 for mortgage, £230 for endowments = £750/month

- surrender and repay £36000 leaving £65000, repay £720/month + £10 for life cover (10 year, term reducing cover needed, right?) = £730/month

So, £750 for a risky approach, or £730 for a sure thing, right?

(c) I'm missing something to do with the surrender process such as hidden penalties, tax liabilities etc. which I haven't factored in to the surrender values I've been quoted.

Any thoughts?