Sell Endowment Policies
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 Endowment Policies
The Changing
Economic Climate
When your current plan was
arranged the contribution level was based on what at that time were
considered to be conservative assumptions about the future economic
conditions.
Over recent years there has been a reduction in interest rates and
inflation has fallen. Most economic forecasters are predicting that low
interest rates and low inflation will continue for the foreseeable
future.
As a result of this investment companies have revised their projections
for growth.
The Wrong Plan For Me
You may have a case for going back to the Endowment
Company if you think the policy was unsuitable for your circumstances
when you took the plan out, such as:
You did not want any risk or participation in equity growth
The plan term runs past your normal retirement age and you do not have
the income to maintain contributions.
If you believe that an Endowment should not have been arranged for you
at the time you should write to the complaints department of the life
company detailing your reasons. If they do not deal with your complaint
satisfactorily then you can take your case to the Ombudsman on 0845 080
1800
http://www.financial-ombudsman.org.uk
New Projected Rates of Return
The Insurance Industry now bases illustrations on
growth rates of 4% 6% and 8%.
Contributions are calculated on the middle rate of 6%. This means that
your plan would have to achieve 6% growth to reach its target maturity
value.
These rates are only projections and are not guaranteed rates of
return, your plan may achieve more or less than this.
Review Process
All Insurance Companies have recalculated their
projections assuming a rate of return of 6% and because of this some
policies have a potential shortfall at maturity.
Options for action
If your policy shows a potential shortfall there are
various options open to you. Don’t forget that the shortfall is based
on an assumed rate of return, your policy could perform better or worse
than this current projection.
Increase your contributions
You can increase your contributions into the plan, your
Insurance Company will give you details of this with the review papers.
This may not be the most effective option because the increase could be
diluted by plan charges
Extend the term.
You could extend the term of your mortgage and
Endowment Plan, this is not a recommended option because of the extra
interest you will pay on your mortgage.
Repaying some of your mortgage.
If you have other savings that are not needed or
subject to withdrawal penalties you could consider repaying part of
your loan. Some lenders charge for partial redemption so please check
with them before taking action.
Saving to cover the shortfall
A savings account could be opened to save over the
remaining term to cover the shortfall. If the Insurance Company has
asked for increased premiums, this would be a good guideline of how
much to save.
Converting part of your mortgage to a repayment basis.
If a potential shortfall is indicated by the review you
could ask your lender to convert part of your mortgage equal to the
shortfall to a repayment basis. Your lender may charge for this so
check first and it is best to keep the term of the repayment option the
same as the remaining mortgage to avoid paying extra interest.
Convert all of your mortgage to a repayment mortgage
You may prefer to convert all of your mortgage to
repayment. Your repayments to your lender will go up and if you extend
the term to reduce this increase you will pay more interest.
It
may be possible to surrender or sell your Endowment policy and use
these proceeds to reduce your mortgage subject to any penalties from
the lender for capital repayment.
To
get a quote for the sale of your policy use the Sell your Endowment
Link opposite.
Wait and see
If your potential shortfall is small or you are not
concerned at the moment, you could wait and see how investment returns
actually perform. The problem with this course of action is the longer
you wait the more difficult it will be to make up the shortfall.
Finally
You must take all your circumstances into consideration
before you make your decision; do you have other investments? Are they
likely to have a shortfall or surplus? Will you have access to other
funds, inheritances for example? Are you likely to move and change your
mortgage arrangements anyway?
It is not normally advisable to cancel an endowment policy because the
policy needs to run to its full term to achieve value for money.
Even if you convert your whole mortgage to repayment basis, it would
still be advisable to keep the Endowment running as a savings vehicle
if at all possible.
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