Endowment Advice Greatly Appreciated!

Calchas

My Legal and General with profits bonus statement is as follows:

Maturity date June 2013

Basic sum assured: £13,005

Life Cover: £42,500

Existing bonuses: £8,738

2007 annual bonus rate applied to basic sum assured: 1.25%

2007 annual bonus rate applied to existing bonuses: 1.25%

Total annual bonus added for 2007: £271.80

Total of basic sum assured and annual bonuses to 31 December 2007: £22,014.80

Current final bonus rate (%): 108%

Monthly payment: £52.78

Surrender value as at 20 May 2008: £25,136.10

Projected maturity amount using 4%, 6% and 8% annual growth: £33,700, £36,800 and £40,000

I am coming to the end of a five year fixed mortgage rate (3.99%) in September, which will leave me with five years to the finish line and owing £30,000.

Given the uncertainty with endowment policies, not least because the company are at liberty to decide percentage bonus rates based on no fixed criteria, I am becoming increasingly attracted to surrendering the policy, paying it into the mortgage and leaving myself with around £5,000 owing

Advice as to the rights, wrongs and even sheer silliness of my thought processes would be greatly appreciated!

EdInvestor

Calchas wrote: »

Projected maturity amount using 4%, 6% and 8% annual growth: £33,700, £36,800 and £40,000

If you surrendered the endowment and used the lump sum to reduce the mortgage at a rate of 6%, also increasing the mortgage payment by the amount of the redundant endowment premium, at the end of the 5 years you should have a total return of 37,338.

So it looks like a good idea to me as it's unlikely you'll make any more than that from the policy which has lost its risk premium.By paying off the mortgage you get a similar,possibly better and guaranteed return.

Calchas

Thanks EdInvestor

The guaranteed return is attractive.

My only concern is the somewhat irrrational feeling that because I have had the endowment for twenty years I should keep it for another five!

dunstonh

The guaranteed return is attractive.

It's not guaranteed. The interest rate is subject to changes.

EdInvestor

Calchas wrote: »

My only concern is the somewhat irrrational feeling that because I have had the endowment for twenty years I should keep it for another five!

I've noticed this before with some posters. The endowment has become so familiar it seems it's rather like a old much loved teddy bear, slightly foxed, but very difficult to get rid of.

It's probably time to put away such childish things.

Dick_here

EdInvestor wrote: »

If you surrendered the endowment and used the lump sum to reduce the mortgage at a rate of 6%, also increasing the mortgage payment by the amount of the redundant endowment premium, at the end of the 5 years you should have a total return of 37,338.

As it's a with profits policy, you'd potentially do even better by selling it rather than surrendering.

Calchas

dunstonh wrote: »

It's not guaranteed. The interest rate is subject to changes.

You don't consider now is a good time for a fixed rate dunstonh?

Calchas

EdInvestor wrote: »

It's probably time to put away such childish things.

I will seriously consider it when I have time. At the moment I'm trying to find my dummy

Calchas

!!!!!!_here wrote: »

As it's a with profits policy, you'd potentially do even better by selling it rather than surrendering.

I have left my details with AAP (Absolute Assigned Policies) !!!!!! here and they will get back to me within two days if they can beat the surrender value.

I may try some others by telephone.

Thanks for the suggestion.

dunstonh

Calchas wrote: »

You don't consider now is a good time for a fixed rate dunstonh?

No. Interest rates are likely to rise once the credit crunch has eased over.

However, i think that comparing a variable rate of return on an endowment policy against a mortgage interest rate that is subject to change but calling it guaranteed isnt telling the full story.

I would also like the figures to be more up-to-date as we have had a bonus announcement since your values. I would like to see how much you are going to lose by surrendering (using values from the same day and not nearly 6 months apart with a bonus announcement in between).

Calchas

dunstonh wrote: »

I would also like the figures to be more up-to-date as we have had a bonus announcement since your values. I would like to see how much you are going to lose by surrendering (using values from the same day and not nearly 6 months apart with a bonus announcement in between).

Legal and General state that their bonus announcements take place every February for the preceding year and statements are sent out in May; therefore it's as up to date as I am going to get it currently.

It seems the only way to match the figures would be to make telephonic enquiries next February.