Endowment Investment TV

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The general view of investing in Endowment Policy



Endowment Policy

The endowment policy is a type of life insurance policy that designed to pay a lump sum at a certain time or if the person dies an endowment policy may mature at ten, fifteen, or twenty years and some of these policies may also provide money if there is a serious illness. Endowment policies are generally the traditional with-profits or unit-linked and with unitised with-profits funds.


Surrender Value and Adjusted Market Value

Endowments can sometimes be chased early or surrendered early and the policy holder receives the amount of the surrender value determined by the insurance company. How much is received is going to depend on how long the endowment policy has been in effect and the amount paid in to it. Under bad investment conditions the encashment or surrender value may be reduced by a market value adjuster to squeeze out some cash during the time when investment conditions are not good and this means the investor will received only the surrender value minus the adjusted market value.

Question of cash: Standard Life endowment policies - SIPPS, self-investment personal pension schemes - Fixed-rate repayment mortgage



Q Can you advise me on the sale of my Standard Life endowment policies? What percentage could I achieve above surrender value and what sort of commission is normally payable? Can any reputable financial broker advise me? Is any particular time of year best? HJS, by e-mail.
A The sum you might realise above surrender value depends on a variety of factors, the policy issuer, the state of the market, term of policy, etc. Colin Jackson, of Baronworth, an IFA which runs an established trawling service for endowments, says a Standard Life policy which has operated for more than five years and has a value in excess of £2,000 should have a ready market, typically selling for 15 per cent or more above surrender value.
Other insurers' policies will sell for 15 to maybe even 70 per cent above surrender value, but a few insurers offer surrender values matching market prices. Jo Bridger of the endowment market-maker Policyplus suggests a Standard Life policy should sell at 10 to 15 per cent over surrender value.
You can sell either by going to an IFA, which should approach all market-makers for the best price, or by going to a market-maker. Neither will charge you a commission, but an IFA will be awarded a commission by the buyer. This means you might achieve a better price from a market-maker, but to assess the market you must approach several market-makers, and preferably all of them.
You can obtain a list of members from the Association of Policy Market-Makers (020 7739 3949), but most market-makers are not members. IFAs that trawl the market say they are likely to obtain the best price. You should go to an IFA, because a market-maker is not permitted to advise and select an IFA that specialises in endowment trawling services.
A specialist IFA or a market maker should undertake all associated legal processes free, but check before agreeing a sale. Markets usually become volatile in spring when bonuses are announced. Values fell after this year's bonus announcements and will probably do so again next year, if bonuses are poor. The market is strong. If you do not need to surrender or sell your endowment keep it until the end of term to generate the terminal bonus.
Q In a recent article in "Your Money" (Wealth Check, 15 May) regarding buy-to-let and property for investment, you mentioned SIPS. Would you kindly give the name of a company, or individual that can give independent advice on SIPS, or a publication that explains it and where I can obtain this information. SC, by e-mail.
A SIPS, or SIPPS, are self-investment personal pension schemes. As a point of clarification, SIPPS cannot be invested in buy-to-let residential properties. For information on SIPPS you can visit the website of the SIPP Provider Group (www.sipp-provider-group.org.uk).
The two main administrators of SIPPS are PPML, a subsidiary of Winterthur Life whose products are sold only through IFAs, and James Hay Pension Trustees (01722 435810). The only IFA listed by IFA Promotion as specialising in SIPPS advice is the Beckett Group (020 7626 0777).
Q We have a fixed-rate repayment mortgage with HSBC of £47,981 at 6.85 per cent till September 2003, and an ERL of £37,596 at the same rate and for the same period, both with 14 years to run. The redemption penalties are £713 and £543 respectively. Can we benefit from paying the penalties and moving to a lower rate? Does HSBC have a rate we could change to or would we be better off elsewhere? MR, Coventry.

A Ray Boulger, of John Charcol Brokers, says: "The redemption penalty equates to just under 1.5 per cent of the mortgage. If you remortgage now, by the time you complete you would save one year's payments on the fixed rate. To cover the redemption penalty you would have to save, after expenses, 1.5 per cent over the next year.
As you are paying 6.85 per cent you need a rate of 5.35 per cent or better without extended redemption penalties to make remortgaging worthwhile. There are a few two-year fixed-rate mortgages available under 5 per cent, but after allowing for costs you will probably only break even.
HSBC's fixed-rate mortgages are normally very expensive (their cheapest is 6.15 per cent for three years) so you will almost certainly need to remortgage now or when your redemption penalties end if you want a good fixed rate, in which case it is worth considering paying the redemption penalty and remortgaging now.
If you are happy to switch to a discounted rate there is a good choice of deals allowing you to recoup your redemption penalty within a year, several with rates of 4 per cent, some paying valuation and legal fees. If a discount appeals, bite the bullet and pay the penalty."

By The Independent Pensions