Endowment -All Advice Welcomed

bigchipper

Hi

Grateful for any advice on the following. I have 3 Scottish Life policies taken out to cover a mortgages. Due to shortfall problems I switched to a repayment mortgage a couple of years ago but kept the endowments for the life assurance and as a savings vehicle. Due to the closed fund's continuing poor performance however I am wondering whther I should continue to throw good money after bad or to surrender policies (or make them "paid up" if thats better) and pay any current premiums into another savings vehicle.

My mortgage details and that of each policy is as follows:

Mortgage

Remaining mortgage of £59506 due to finish 5/2019. Just entered new 5 year fix of 5.79 (no fees) with Lloyds TSB

Policy1

Provider: Scottish Life Budget Plan With Profits 1968 series (started 5/1989)
Guaranteed sum assured: £8487
Death Benefit: £34500
Declared bonuses: £4047 @31/12/06 awaiting more recent statement but know it wont be much more!
Surrender value: £8910.52 (as of 22/4/08)
Monthly premium:£41.48
Maturity date: 2/5/2019
Maturity forecasts: £18400 (@3.5%) or £26900 (@7.5%) as of 22/4/08

Policy 2

Provider: Scottish Life Profitbuilder House Purchase Plan (started July 1993)
Guaranteed sum assured: N/A but guaranteed minimum death benefit £30128
Declared bonuses: N/A unit based policy
Surrender value: £6699.62 as of 22/4/08
Monthly premium: £46.99
Maturity date: 2/7/2019
Maturity forecasts: £15500 (@ 4%), 22700 @ 8% as of 22/4/08

Policy 3

Provider:Scottish Life Budget Plan (TP1) With Profits Unitised 1 Fund (naively started in 5/99 due to poor performance of policy 1!)
Guaranteed sum assured: N/A unit based policy but Death Benefit: £5400
Declared bonuses: N/A unit based policy
Surrender value:£2688.72 @ 22/4/08
Monthly premium: £30.00
Maturity date: 2/5/2019
Maturity forecasts: £8360 (@3.5%) £11400 (@7.5%) as of 22/4/08


Sorry if this is a bit of a saga

bigchipper

glitzy

Hi there

when you say surrender value is that what you get if you cash in, if so you could knock off approx £18,000 of your mortgage, and with the extra cash from not paying endowments £118 you could over pay this each month - obviusly you would have to find life ins to cover mortgage but mine is with scottish widows for £60,000 at £13 a month level term. im no expert but im sure somebody will be able to point you in the right direction - good luck

bigchipper

glitzy wrote: »

Hi there

when you say surrender value is that what you get if you cash in, if so you could knock off approx £18,000 of your mortgage, and with the extra cash from not paying endowments £118 you could over pay this each month - obviusly you would have to find life ins to cover mortgage but mine is with scottish widows for £60,000 at £13 a month level term. im no expert but im sure somebody will be able to point you in the right direction - good luck

Hi Glitzy

Thanks for the reply. Yes surrender value would be what I could get if I cashed in . As you say if I did sO i could lop £18k off my mortgage but as I can afford both the mortgage payments and the endowment payments at the moment the $64k question for me is whether it offers more financial sense to part pay off the mortgage or cash in and reinvest elsewhere or just stick with them.

Regards

Bigchipper

bigchipper

bump

EdInvestor

bigchipper wrote: »

Policy1

Maturity forecasts: £18400 (@3.5%) or £26900 (@7.5%) as of 22/4/08

If you surrendered this policy and used the lump sum to pay off the mortgage also using the premiums to boost your mortgage payment to maturity, at a return of 5.79% you would have 24,061 at maturity. Do you have a middle forewcats for the policy? The ScotLife fund is likely to return in the 4%+ range.

Policy 2

Maturity forecasts: £15500 (@ 4%), 22700 @ 8% as of 22/4/08

Following the same approach as above you would get 21,053 at maturity.

Policy 3

Maturity forecasts: £8360 (@3.5%) £11400 (@7.5%) as of 22/4/08

With this one the return would be 10,489.

Overall the likelihood is that you would match or exceed the policy returns without taking a risk thus there seems little point in continuing. You may need to allow for the cost of replacement life cover.

dunstonh

What about factoring in the cost of replacement life cover and that policy 2 & 3 are unit linked and the higher projections are within the potential of a typical balanced managed unit linked fund?

bigchipper

Edinvestor and Dunstonh

Thanks for the help.

When I asked for the forecasts on the policies they only gave me the info at the 2 rates I mentioned previously. I do however have a forecast from a year ago that has a middle forecase rate. These were:

Policy 1 £21300 (@4.5% as of 5/2007)
Policy 2 £18000 (@5% as of 5/2007)
Policy 3 £9333 (@ 4.5% as of 5/2007)

Given predicted the other rates quoted at this time appear to have fallen its probably safe to assume these rates have too, by around 4%.

Not sure if this makes a difference but it seems to me to be a pretty close call whether to "stick or fold" . On balance Im minded to stick as I seem to recall that when SL were taken over by Royal London there were vague promises that existing policyholders would see some additional benefits when their qualifying policies (policy 1 only i think?) matured (I assume in the terminal bonus?). Of course, my memory may be playing tricks or the promises may prove empty.

I'd also like to ask a couple of dumb questions re the SL fund. As i understand it this is now a closed fund and the trustees are lowering predictions because the investment strategy is to invest in safer assets to protect the pool of policy holders. Does this safety first strategy mean that there is a risk there may be a surplus left in the fund at the end when all the existing policies have matured (and if so so who gets it?). Or if not could policies maturing later benefit from any earlier overcaution in distribution?

big-chipper

EdInvestor

bigchipper wrote: »

Not sure if this makes a difference but it seems to me to be a pretty close call whether to "stick or fold" .

It's really a question of whether you think the retiurn will provide an adequate premium for taking the risk.I would think not personally.

On balance Im minded to stick as I seem to recall that when SL were taken over by Royal London there were vague promises that existing policyholders would see some additional benefits when their qualifying policies (policy 1 only i think?) matured (I assume in the terminal bonus?).

IIRC that got cancelled during the 2003 stockmarket crash/FSA reregulation. Does your policy have any terminal bonus left?

I'd also like to ask a couple of dumb questions re the SL fund. As i understand it this is now a closed fund and the trustees are lowering predictions because the investment strategy is to invest in safer assets to protect the pool of policy holders.

Correct. Not much in the way of equities left i the fund now IIRC, hence a poor return is likely after charges and tax.

Does this safety first strategy mean that there is a risk there may be a surplus left in the fund at the end when all the existing policies have matured (and if so so who gets it?).

The members of Royal London at the time as it's a mutual.

Or if not could policies maturing later benefit from any earlier overcaution in distribution?

The reason you are suffering now is because of the opposite - reckless overdistribution in the 80s and 90s, so one doubts if there is anything likely to come from that source, even assuming you are still alive to see it.

bigchipper

EdInvestor wrote: »

IIRC that got cancelled during the 2003 stockmarket crash/FSA reregulation. Does your policy have any terminal bonus left?

I thought you only found this out at maturity?

Thanks again,

b-c

Capricorn_One

And there's selling the policy instead of surrendering to consider as well...