Endowment alternatives

[dvs_dave]

I've an endowment policy that my dad very thoughtfully set up for me when I was 18. 77 quid a month for 25 years with the "promise" of a 43k value at the end. 17 years on and like all endowments it has performed very badly. With 8 years to go it's currently worth just shy of 20k.

Is it worth cashing in and sticking the cash elsewhere? If so, what would be a good and relatively safe investment vehicle for the next 10 years or so?

[Sarnie]

What makes you say it's performed badly?

Endowments have a terminal bonus, that can account for up to 33% of the funds value, but is only achieved at the end of the policy. Another 8 years and then 33% of the funds value in terminal bonus may see it not far from the initial projection?

Yours has at least made more than has been paid in, which is ahead of a lot of others!

[Claudia Skies]

dvs_dave said:

I've an endowment policy that my dad very thoughtfully set up for me when I was 18. 77 quid a month for 25 years with the "promise" of a 43k value at the end. 17 years on and like all endowments it has performed very badly. With 8 years to go it's currently worth just shy of 20k.

Is it worth cashing in and sticking the cash elsewhere? If so, what would be a good and relatively safe investment vehicle for the next 10 years or so?

Not my specialist subject but, hang on, let's do the math.

17 years x 12 months x £77 = £15,708 paid in. Current value c.£20k.

An endowment has life assurance attached to it - and that has to be paid for. So I'm not immediately clear why you think it's performed "very badly" in real terms even though that fancy figure of £43k being waved about at the start turns out to be pure puffery.

IF you don't need the life insurance and IF there are no penalties for getting out and IF you're not already maxing out your annual ISA allowance (or pension contributions) it would not be unreasonable to get out and invest elsewhere.

[Ginge R]

Like Sarnie suggested, it's all in the Terminal Bonus - and they have been dropping. And is there a penalty for quitting? Take the surrender value, add in the remaining payments you have to make and compare it to the projected maturity value. Calculate the additional savings you'll make by paying off something else, such as your mortgage and factor in the cost of life cover if you need it.

Take a decision about the underlying investments within the endowment too, is there scope to change? The Regulator compelled insurance companies to sell a significant proportion of their equity based investments in 2003 when the FTSE was relatively low, and made them invest instead in low risk (and exceptionally low interest) bonds.

If you can't change the funds, and if this is where the funds are invested, take a view on the future of fixed interest bonds before you lick your finger and stick it in the wind.

Finally, instead of cashing it in, if you are really intent on letting it go, you can often get a better surrender value on the traded endowment market than that offered by your life assurance company which will be only too keen to make a quick buck by buying it back off you. Either way, a wrong decision might cost you dearly so take advice that you trust.

[sidicks]

Ginge R said:

Like Sarnie suggested, it's all in the Terminal Bonus - and they have been dropping. And is there a penalty for quitting? Take the surrender value, add in the remaining payments you have to make and compare it to the projected maturity value. Calculate the additional savings you'll make by paying off something else, such as your mortgage and factor in the cost of life cover if you need it.

Take a decision about the underlying investments within the endowment too, is there scope to change? The Regulator compelled insurance companies to sell a significant proportion of their equity based investments in 2003 when the FTSE was relatively low, and made them invest instead in low risk (and exceptionally low interest) bonds.

If you can't change the funds, and if this is where the funds are invested, take a view on the future of fixed interest bonds before you lick your finger and stick it in the wind.

Finally, instead of cashing it in, if you are really intent on letting it go, you can often get a better surrender value on the traded endowment market than that offered by your life assurance company which will be only too keen to make a quick buck by buying it back off you. Either way, a wrong decision might cost you dearly so take advice that you trust.

If he's got the potential for a terminal bonus then it must be a with-profit policy and so no scope to change the investment allocation.

[Ginge R]

Sure, I was just trying to include a few various options for WP as well as Unit linked.

OP,

I'm not suggesting you should trade it, but if you want to make a more informed decision about your policy value on the traded market or to simply provide a comparison against what your life company might offer, this is quite a good place to start.

http://www.apmm.org/index.php

https://www.moneyadviceservice.org.uk/en/articles/...

[Claudia Skies]

Ginge R said:

Finally, instead of cashing it in, if you are really intent on letting it go, you can often get a better surrender value on the traded endowment market than that offered by your life assurance company which will be only too keen to make a quick buck by buying it back off you. Either way, a wrong decision might cost you dearly so take advice that you trust.

^^ Yes, that's a very good point. Many years ago I "abandoned" a mortgage-related life policy after 2 years and subsequently found I could have "sold" it if I'd been awake and paying attention.

[megaphone]

Investigate making the policy 'paid up'. You stop paying into the policy but it stays active, policy has an agreed value, but can still achieve a terminal bonus. Life insurance element can be affected if that is important to you.

Again you need to do all the mathS.

[dvs_dave]

It's a with profits policy and reason I say it's doing badly is that I keep getting the notices from the company warning me of a serious shortfall being very likely. Terminal bonus....nobody can say, but by the sounds if it, and the warnings given I'm not hopeful it'll be all that. Any way of estimating what it'll be or is that wishful thinking?

I have other arrangements for life insurance so that bit of it isn't important to me anymore.

I'm just mulling over wether it's worth taking the 20k surrender value and investing it elsewhere? What is the modern day equivalent of an endowment?

[Claudia Skies]

dvs_dave said:

I keep getting the notices from the company warning me of a serious shortfall being very likely.

That's only relevant if you have a mortgage which you are/were hoping the policy would pay off at maturity.

[megaphone]

You really need to think about this, surrendering could be the worst decision. At least look at selling it, as suggested above. Or look at my suggestion, make it 'paid up'. You need to do the sums.

Have read here

https://www.moneyadviceservice.org.uk/en/articles/...