Endowment - Keep or Sell?

TCA

Hi All

I have a with profits endowment policy with Friends Provident which I took out in November 1991 in tandem with a mortgage which it was supposed to repay 25 years later when it matures in November 2016. I have continued to make payments to the policy despite not owning a property for several years and am now wondering whether I should just sell the policy. The plan details are as follows:

Start date: 19/11/1991
Maturity date: 19/11/2016
Target amount/Life cover: £32,000
Monthly payment: £39.40
Guaranteed amount for bonuses: £11,552.00
Declared bonuses added in previous years: £4,197.43
New bonuses added this year: £10.49
Total of guaranteed amount plus all bonuses: £15,759.92
Bonus rate on guaranteed amount: 0.00%
Bonus rate on existing bonuses: 0.25%
Forecast payout @ 4% growth = £17,900
Forecast payout @ 5.5% growth = £19,900
Forecast payout @ 8% growth = £23,800

Surrender value as of today (4/6/08) is £10,349 - I enquired a while back about selling as a traded endowment policy and the offer was only marginally higher than the surrender value, so I assume still not too much difference as of now. I will check pending feedback on here.

So my question is, is it worthwhile continuing to pay this policy up?

I don't need the cash. I have no dependants although the life cover may be useful should I need a mortgage in years to come? I pay higher rate tax and eradicate my 40% liability by making pension payments but ofcourse could pay more. Yet if the likelihood is that this policy will earn no more than if the lump sum and future payments were stuck in a decent interest paying savings account, am I wasting my time with this?

Any advice appreciated.

Thanks in advance.

Edited to say that I forgot to mention that the surrender value always seems to increase dramatically on each anniversary of the policy (i.e. November), so that would seem the best time to sell if any. Any views on that?

martinman3

TCA wrote: »

Guaranteed amount for bonuses: £11,552.00
Declared bonuses added in previous years: £4,197.43
New bonuses added this year: £10.49
Total of guaranteed amount plus all bonuses: £15,759.92
Bonus rate on guaranteed amount: 0.00%
Bonus rate on existing bonuses: 0.25%

So the only bonus you are getting is 0.25% of the bonuses you already have.
What a great example of a with-profits policy.:rolleyes:

I am certain that others will give informed opinion shortly.

TCA

Anybody got any advice?

Pretty please?

martinman3

TCA wrote: »

Anybody got any advice?

Pretty please?

Remember that forum rules don't allow financial advice, only opinion.

EdInvestor

TCA wrote: »

Forecast payout @ 4% growth = £17,900
Forecast payout @ 5.5% growth = £19,900
Forecast payout @ 8% growth = £23,800

If you cashede this one in and put it on deposit at a net 5%, also paying in the monthly premiums to maturity you would end up with 19,879 with no risk. Much the same as the forecast. So basically there's no risk premium left in the policy, so it's not worth keeping.

dunstonh

Many FP plans have access to their unit linked range so there can be a risk premium.

EdInvestor

dunstonh wrote: »

Many FP plans have access to their unit linked range so there can be a risk premium.

But oif you wanted to invest in that kind of fund with no guarantees attached, you wouldn't use an endowment where you pay 20% tax and compulsory life cover, but rather a modern tax free ISA, which will almost certainly have a better choice of funds as well.

TCA

EdInvestor wrote: »

If you cashed this one in and put it on deposit at a net 5%, also paying in the monthly premiums to maturity you would end up with 19,879 with no risk. Much the same as the forecast. So basically there's no risk premium left in the policy, so it's not worth keeping.

Thanks for the replies.

The above was my thinking based on simple arithmetic. I presume by 'no risk premium', you mean that the investments within the endowment have very little risk (i.e plenty fixed interest investment, cash equivalents and the like), therefore there's not likely to be much upside to continuing with the policy?

That being the case, I think I'll sell.

P.S. I've never received anything regarding ability to switch funds, so as far as I am aware, I'm stuck with what I've got.