Red-letter Endowment: now what do I do?

Voyager2002

I recently received a 'red' letter in relation to my old Scottish Amicable endowment policy (a 'with-profits' policy). I have already explored the mis-selling avenue, but no joy there. Anyway, should I continue paying the premium, or make the policy 'paid-up' and put the premium into an alternative investment? Or something else?

Surrender value: 13,061.01;
Maturity date: 3 Feb 2017;
Monthly premium: 61.10;
Paid up Value: 10,304.87;

Claim value on death: 42,000
Loan value (interest charged at 7.5% pa): 7,735
Paid up value: 10,304.87

Projected values:

Possible maturity benefit (assuming a further 11 years and 6 months premium paid) ranges from 29,600 to 43,700

Possible paid up maturity benefit (assuming no further premiums paid) ranges from 20,100 to 31,000.

Life cover is not terribly important to me, and anyway I am in excellent health.

If the policy were made paid-up the premiums saved would probably be used to overpay my mortgage, which is interest-only (but no restriction on repayments of capital) and is currently at 5.05%.

Any ideas please?

dunstonh

Scot Am WP endowments have shown an improvement this year and seeing as it's Pru at the helm, you can take a more relaxed attitude than many others. The list I got this year showed the endowments back to 2001 levels.

Pru have just set their Pru fund rate to 8% based on recent performance. Now you are unlikely to get that amount in the short term on the scot am endowment but its an indication of the current performance of the underlying investment fund.

Given the number of years, you could well see the plan revert to being on track again. Perhaps if we know what the projection rates were, we would have a better idea. If 4, 5 & 6%, then its a good chance that 6% is a possibility. Any higher than it gets less likely.

Voyager2002

Thank you, Dunstonh.

Just to make sure I understand you; you seem to be saying that this endowment might turn out to be a reasonably good investment after all, and see growth of as much as 6 per cent as realistic. In that case, since the maximum benefit I would be likely to get from the money I spend on the premium is saving some of the mortgage interest I pay (by over-paying my mortgage), and my mortgage is currently at 5.05%, it sounds as if I should stay with the policy.

Or have I misunderstood something?

dunstonh

Just to make sure I understand you; you seem to be saying that this endowment might turn out to be a reasonably good investment after all, and see growth of as much as 6 per cent as realistic.

Out of all the with profits funds there are, Pru is the strongest. Its actually quite a good fund as well. 6% is certainly within the potential of the Prudential with profits fund.

As to whether it hits 6% i cannot tell you without a crystal ball.

The difference between ongoing premiums and paid up is not that high and that may swing it more towards the paid up side. If it was me or a case I was reviewing, I would want to know if there was a terminal bonus included in those figures or if the terminal bonus was incremental. Prus online valuations for IFAs tends to show the figures without the terminal bonus but a second value with it added in. Ongoing premiums being paid now would (and over recent years) have greater potential to increased terminal bonuses in the future. If you stop paying in, you will reduce that potential.

Its a tough call. You could be a little worse off or a little better off with either option. The fact its pru, swings it more in favour of the keep running perhaps but whatever you do on this one you arent going to know until 2017 which was the best way.

EdInvestor

Hi Voyager

Does this policy have a guaranteed sum assured and annual bonuses? Or is it a "unitised" WP policy?