Cash-in or Hold-on
Thousands of people cash in their endowment
policies every week, fed up with falling returns and warnings that their
mortgage won't be repaid. But cashing in isn't always the right decision. Here
are the questions you should ask before waving your endowment goodbye:
WHAT is the endowment supposed to be doing?
Presumably repaying your mortgage and it's
probably failing. Payouts may continue to fall and if you have not made
arrangements to plug the shortfall you should do so immediately by contacting
us. But that doesn't mean cashing in your endowment will always be the best
option.
BUT why keep it if it’s not going to pay off my
mortgage?
Some policies have a mortgage promise. A few
guarantee to repay the whole mortgage while others will top up your endowment to
certain levels without actually promising to cover the whole mortgage – though
some have conditions attached. They include Standard Life, NFU Mutual, Wesleyan
and Norwich Union's funds including Commercial Union and General Accident.
WHAT are the dangers of cashing in an endowment
policy?
You could trigger a tax bill. Endowments enjoy a
special tax status, but only if you keep them running for at least
three-quarters of the policy life and a minimum of ten years. Higher rate
taxpayers who cash in early could be liable to 18% tax on profits, (the
difference between basic and higher rate tax). People whose endowment was taken
out before April 1984 also benefit from tax relief on premiums.
WHAT about life cover?
You will lose your life assurance if you cash in
your endowment policy, so it is vital to get new life cover and/or critical
illness cover for your mortgage before cashing in. Please contact us to discuss
this and allow us to review the market as independent financial advisers to
ensure the most competitive plan and premium are found for you. If you have
suffered from certain illnesses you may not be covered by a new policy whereas
your endowment will cover you. New life assurance and/or critical illness could
be more expensive because you will be older now than when you started your
endowment policy. However, life assurance rates have fallen so some people
could actually re-insure more cheaply.
ANY other reasons for keeping the endowment
policy?
This might sound unbelievable, but in some cases
you could have a reasonable investment. Some older policies with strong
insurers should make reasonable payouts.
WHAT has all the fuss been about?
Many endowment policies are saddled with poor management and high
charges. They may have been mis-sold to people who did not need life assurance,
were too old to be swapping to a stock market investment or who did not
understand the product.
WERE they good or bad?'
As a pure investment smoothing out stock market
up's and down's some have worked. But as a mechanism for repaying a mortgage
most are abject failures. Some insurers have also poisoned them with hidden
charges.
WHAT are the alternatives if I don’t want to keep
paying?
If it is a with-profits endowment and has been
running for at least ten years you may be able to sell the policy *. Contact
the Association of Policy Market Makers for details. Or you may be able to make
the policy 'paid-up'. This means your money stays invested and will continue to
earn bonuses. When it matures you will get a payout, though it will be much
smaller than if you kept saving.
HOW can I judge if my endowment is worth keeping?
Ask us as independent financial advisers for a
review of your endowment policies to allow you to make a fully informed decision
as to how best to proceed, especially if your endowment is linked to repaying
your mortgage loan. It is vital to obtain independent advice now in order to
take action before your mortgage loan is due to be repaid to your mortgage
lender.
We will review how your endowment fund is doing
in the performance tables and ask whether the fund is still open to new business
and how much is invested in shares. Part of our review will include checking
how much the policy may pay out based on the re-projection letter you will have
received from the endowment provider.
We will also help you weigh the re-projection
amount against the amount of your mortgage and establish how best to proceed to
ensure that you do not end up with a large lump sum to find when your mortgage
lender requires repayment of your mortgage loan in the future, whenever, that
may be.
* We do not provide any advice or recommendation
regarding the sale of an endowment policy. We have provided the contact
information only for the Association of Policy Market Makers. We will not be
held responsible for anyone selling an endowment policy by providing contact
information only.
Your home may be repossessed if you do not keep up repayments on your mortgage.
We can
either be paid commission by the lending institution or charge a fee for
Mortgage Advice. The amount of the fee will depend on your circumstances,
typically 0.5% of the loan amount. | 
R.J.
Nash
Consultancy Ltd
