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Should you sell your endowment?

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Selling your endowment policy gets you a lump sum now. You could get more than if you cancel the policy, but less than if you wait until it matures. Here’s how to decide what to do.
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When you sell your endowment you will lose any associated life insurance and forgo any future windfall payments from the Life Office.

You may also get less than you would receive if you kept your policy until maturity.

Working out whether you are better off selling your endowment will require a lot of thought, and it could be well worth taking independent financial advice. After all, your endowment policy is a sizable investment and keeping or selling it is not a decision to be taken lightly.

Make the most of your tax-free ISA.

Pros and cons of selling your endowment

If you’re thinking of selling your endowment, you should be aware of the following potential advantages and disadvantages. Your decision might result in you:

  • Getting more money than if you just cancelled it

  • Being able to pay off your mortgage

  • Being free to invest in something better as you will no longer be paying into the policy

  • Getting less than the maturity value

  • Being unable to sell your policy

  • Paying mortgage repayment fees

  • Losing any associated life insurance

  • Forgoing any future windfall payments from the Life Office

How selling your endowment works

If you hold an endowment policy, you can sell it to a third party before its maturity date. You might want to sell if your statement shows it’s worth less than you thought, or if you need access to the funds locked up in your endowment before it matures.

Whoever buys it then owns the policy, meaning they get the payout when it matures and they take over the premium payment.

The amount third-party buyers are willing to pay for endowments is usually higher than the amount you could get if you ask your provider to cancel the policy.

It also means you could get a lump sum for it within a few weeks instead of waiting until your endowment's maturity date, which could be several years from now.

What are your alternatives?

Wait until your endowment matures

Endowment policies were usually sold as an investment to pay off your mortgage at the end of its term and provide you with an extra lump sum.

But many endowments have made smaller profits than expected, with accusations levelled at the financial sector for mis-selling the policies. The result for many people has been a disappointingly-low return upon maturity. Given you might be investing for up to 25 years, it makes sense to ask your provider how much your endowment is likely to pay out at maturity. If the amount is lower than you expected, you might want to stop paying into it.

You could consider selling it and putting the funds in a potentially more profitable investment. 

You could also repay some or all of your mortgage now, although your mortgage lender may charge fees for this.

Stop making endowment payments

You may be able to keep your policy until it matures but stop making any more premium payments into it. You could consider this course of action if the premiums cost a lot but the final payout will be lower than expected.

The amount you get back when it matures will be less than if you continue to pay into it. If it includes life insurance, this could become invalid or the amount it pays out could go down.

Stopping payments is known as making your policy paid up. Some policies do not let you do this, so ask your provider if it is an option.

Surrender your endowment policy

Asking your provider to cancel your policy before it matures is called ‘surrendering’ it. In this case, your provider pays you a lump sum now instead of at the maturity date.

You usually get much less than if you wait until it matures, and surrendering your policy could also come with fees and penalties.

The fees and charges are collectively known as a market value adjustment and could mean you get back less than you have paid into your policy. Some providers charge smaller penalties when your maturity date gets nearer. 

You can avoid surrender fees and usually get more for your endowment if you sell it to a third party instead of surrendering it.

Can you surrender your endowment for free?

Check how much you can get

You can get quotes for selling your endowment for free and with no obligation to go through with the sale.

Get quotes from several companies and compare this to how much you can get:

  • If you surrender it: Make sure the amount they give you takes into account any fees you have to pay to your provider.

  • If you keep it until maturity: Subtract the cost of the premiums you have to keep paying until it matures.

  • If you keep it but stop making payments: You do not need to consider the cost of ongoing premium payments.

You can find out the surrender value and maturity value by checking your most recent endowment statement or asking your provider.

Working out how much your endowment would pay with each option can help you decide which is best. 

If you’re unhappy with the amount your policy is projected to return at the end of the term, consider whether you’d be better off, after fees have been added, by investing the total in an alternative vehicle. Of course, bear in mind that there’s no guarantee that a fresh investment will out-perform your endowment. 

Is the maturity value guaranteed?

When you ask for the maturity value, note that the amount will be either estimated or guaranteed.

Some policies include a terminal bonus, which is paid when it matures and can be around half an endowment's final value. But this amount depends on how well the investment performs and is not guaranteed.

Other policies include guaranteed annual bonuses, which pay an agreed amount every year, such as 4%.

Check which companies can buy it

Traded endowment companies have rules about what types they are willing to buy, usually including restrictions on:

Once you have details of your policy, you can check which companies are able to buy it.

Consider your financial circumstances

Do you need the money now?

Selling your endowment often means you get less than if you wait until it matures.

But if you need the funds urgently, for example, to pay off a debt, selling your endowment could help you cover this.

Can you afford to pay back your mortgage?

If you took out your endowment to repay your mortgage balance at the end of its term, make sure you find another way to do this.

Selling your endowment could make you enough money to pay off your mortgage balance.

If not, you could use the lump sum to pay off part of your mortgage and then switch to a repayment mortgage. This would replace your interest-only mortgage and means your balance is paid off by the end of the mortgage term.

Switching to a repayment mortgage could cost more each month. But paying off part of your mortgage and no longer paying into your endowment could mean that it works out cheaper overall.

Will you lose your life insurance?

Endowment policies often include life insurance with them. If you sell your policy, you lose the life insurance cover, which could be costly if you’ve made a lot of premium payments.

Aside from the cost, this would also mean that your beneficiary could not make a claim if you died, but the person or company that bought your policy could.

If you took out your endowment with a mortgage or other debt, life insurance can pay it off or give your family a lump sum if you die. If you still want this cover, you could:

Get independent financial advice

The companies that buy endowments do not usually give you financial advice. This means you need to decide for yourself or contact an independent financial advisor.

An advisor can help you decide if you should sell and work out the best way to use the money you get for your endowment.

What to do if you decide to sell

Decide what to use the money for

Before you sell your endowment, work out what to use the money for. You could:

Find the best deal

If you like the sound of selling your endowment, it makes sense to read more on the subject.

About Dan Base

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