Maturing endowment didn't match payout prediction

turbobob

!!!!!!_here wrote: »

But surely by surrendering you lose the entire terminal bonus, don't you ? It may go down year on year, but that is still better than surrendering early and getting none. Or am I missing something ?

It will vary from company to company. My understanding though, from working at one life company, is that on a conventional With Profits policy surrender values are discretionary. That is, the surrender value basis will be decided by the companies actuaries and will be updated from time to time. The guaranteed benefits (BSA and annual bonus) and terminal bonus do not apply on early surrender. However, the surrender value should largely reflect the underlying value of the policy at that particular point in time.

In short, if you keep the policy to maturity you will get the basic sum assured, annual bonus (guaranteed) and a non guaranteed level of terminal bonus as I mentioned above.

If you surrender early you will get whatever they say its worth. But this should reflect underlying value based on current investment conditions.

For example lets say you are fairly close to maturity and the current surrender value is significantly more than the policies basic sum assured and annual bonuses combined. This means that you will need the terminal bonus to be at a certain level in order to match the current surrender value. If the terminal bonus rates were to drop substantially between now and when it matured then it could mature for less than the current surrender value.

Alternatively, conventional WP policies may also be able to be sold on the TEP market for more than the current surrender value.

turbobob

There you go, two completely different answers to choose from

Dick_here

EdInvestor wrote: »

You are.:) Surrender values include accumulated terminal bonus. There may be a penalty imposed for early cash-ins but it would rarely be more than 10% unless the policy was very new, and would often be much less.

However anyone with a unit linked endowment who doesn't need the life cover should consider cashing it in and reinvesting the money in a tax free maxi ISA.By contrast, gains in endowments suffer 20% tax.

Thanks Ed. Though 'maxi' ISAs no longer exist.

That's my understanding of the thing, at least.

EdInvestor

!!!!!!_here wrote: »

Thanks Ed. Though 'maxi' ISAs no longer exist.

That's my understanding of the thing, at least.

Correct. The important point is that the corresponding product is the poorly named "stocks and shares" ISA (up to 7.2k a year), not the cash ISA (up to 3.6k a year).

You can also put loads of other things in the S&S ISA such as bonds, gilts, commodities, commercial property, either individually or grouped in all manner of unit and investment trusts, mutual,hedge and exchange traded funds, investing in a wide range of things.

So not just "stocks and shares", a title which one suspects puts a lot of people off.

It would be much better if one was entitled the "investment ISA" and the other the "savings ISA".But that would be a bit too simple for an industry which is famous for profiting from its clients' ignorance and confusion.