Sell Endowment, pay mortgage?

unsure

My Standard Life endowment has hit red alert for a shortfall of anything up to £10,000. It has four years left before maturity (same as mortgage term), which would mean paying a further £2,500 in premiums while still facing the probability of having to make up a substantial shortfall. If I surrender it and immediately pay the sum offered into my mortgage (overpayments allowed) I will be left with about £10,000 to find in order to pay off my mortgage. I could cover that safely by converting remainder of the mortgage to repayment. Using the money saved from the premiums my outgoings would be much the same. It seems like a no-brainer but am I missing something somewhere?

I don't think the prospect of a small (less than £1000) probable demutualisation windfall would affect my decision.

Also I have been offered apx £750 more than the surrender value to sell the policy would this be a wise move (it would offset the windfall I'd miss out on!)?

Any useful advice welcome!

dunstonh

What about making it paid up? You would still qualify for DM benefit without paying another £2500 in.

Have you found out how much Terminal bonus is allocated to your plan. A policy with 4 years to go is likely to have some TB in there and Standard Life do not include that in their projections. I have seen SL pay out a surplus whilst issuing shortfall projections the year or two before. You shouldnt rely solely on the projection letter.

unsure

Thanks DunstonH,
I've no idea what "paid up" means. Could you explain how that works pls? The total surrender value (£21582 ) includes a "final bonus" of £792. From their illustration there is no way it will cover the £34,500required for the mortgage. I have been offered £22,580 to sell the policy and I am tempted just to get shot of it and get on with paying off the mortgage. The endowment actually dropped in vlaue by £1000 since last year and I am v concerned that the shortfall will grow and become unmanagable if I don't do something about it.

dunstonh

You have 4 options

1 - surrender
2 - continue
3 - sell
4 - make paid up.

Making paid up means you stop paying into it. This will stop the life cover, often reduce the charges but will also reduce the benefits. It can be beneficial to make plans paid up and hold on to them as you will not pay the surrender penalty.

Say the surrender penalty on yours is £2500. By making it paid up, you will pay no more money in and if you wait for 4 years, you will get the DM benefit and on the maturity date you will get the value without that £2500 penalty. This option can often by the best option but is usually ignored by those not seeking advice as they are not aware of it.

Standard Life bucked the trend this year by reducing bonuses. They wouldnt say it but the cynics amongst us would say that they are reducing bonuses now because they expect loads of policyholders to leave them after DM. In effect, they are budgeting for the loss of policyholders in advance. They can also use the money to increase bonus rates after DM and say "look how wonderful it is now, we have been able to increase your bonuses".

unsure

Thanks dunstonh certainly some food for thought which i shall have to ponder further.
cheers

EdInvestor

Hello unsure

I suspect you might find the DM bonuses turn out rather better than you think and would suggest you stayed on.

NAR

If you make a policy "Paid Up" would the value of the policy be reduced if bonus rates change?

dunstonh

NAR wrote:

If you make a policy "Paid Up" would the value of the policy be reduced if bonus rates change?

If the premiums cease, then the guaranteed sum assured is reduced based on what you have paid to date. As the value is lower, the amount of bonus received will be lower. However, its percentage based so the percentage shouldnt change.

It would also depend on the type of endowment. Standard Life sold a variety over the years so what is right for one may not be right for another. Not all had guaranteed sum assureds.

NAR

At the beginning of August Standard Life reduced their bonuses, which had the effect of reducing policy values by about 10%. What I asked was if a policy had been made paid up in July would that policy have suffered the same 10% reduction in value?

dunstonh

NAR wrote:

At the beginning of August Standard Life reduced their bonuses, which had the effect of reducing policy values by about 10%. What I asked was if a policy had been made paid up in July would that policy have suffered the same 10% reduction in value?

I get you now. I wasnt quite sure what you meant in previous post.

The answer is yes.

NAR

dunstonh wrote:

I get you now. I wasnt quite sure what you meant in previous post.

The answer is yes.

Is the surrender penalty 10% or 20% at present?