Selling endowment policies

selling endowment policies

I have found several advertisements in national papers recently from companies selling endowment policies. However, which is the best option to get the best return if you want to sell your endowment policy?

It is estimated that over 4 million with-profits endowment policies were sold by insurance companies in the nineteen eighties and nineties. These policies were designed to last for up to 25 years and increase in value each year as a bonus is added to the amount of money that you paid in every month plus an estimated big bonus at the end of the term. Most of these policies were estimated on annual bonuses accruing at up to 9%, however in reality, with the fall in interest rates over the last 10 years, most policies are currently returning less than 1% per year.

These with-profits policies were sold as a means to repay an interest only mortgage at the end of the mortgage period. Industry experts now predict that 9 out of 10 policies will not reach their target figure to repay the mortgage. With nearly 4 million policy holders having been informed by their insurance companies of the potential endowment shortfall, there is a big market out there for Traded Endowment Policies.

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Popular endowment policies now have

popular endowment policies now have

Are you tired of paying for an endowment policy which you now fear may never pay off your mortgage? Would you be better off walking away? In this article I want to look at the options that people with the once popular endowment policies now have.

Back in the 1980′s endowment policies were seen as low-cost and low-risk ways of saving for your retirement. Unfortunately the reality has been a little different from that which was promised by the keen insurance agents who promoted the policies to British home-owners at the time.

An endowment policy is a combination of life insurance and stock investment all backed by a mortgage against your home. Typically the policy owner has an interest-only mortgage against the property and the capital is invested into managed funds or the stock market. The gains of the market were supposed to pay off the home mortgage at the end of the policy’s term – usually 25 years.

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The benefit of life insurance covering

the benefit of life insurance covering

There is much discussion in the financial sector regarding the endowment mortgage misselling scandal that has affected up to 8.5 million policyholders in the UK.

Endowments policies were sold heavily in the UK during the 80′s and 90′s as a cheap yet secure method of repaying your mortgage debt. The concept was extremely attractive to customers because in purchasing such a policy you had the benefit of a rolling investment that would meet the target amount (the mortgage debt) and then provide a bonus on top which could be used as a savings plan. In addition to this you also had the benefit of life insurance covering the full target amount payable upon death.

These plans were not however as secure as they seemed. All monies paid into the plans would be invested on stock markets around the world and this meant that any return on investment would be very much subject to the performance of the global markets. When the markets suffered a fall in growth – so inevitably would the endowment investment.

Endowment policy is a type of life insurance policy

endowment policy is a type of life insurance policy

Life insurance is a virtual staple of Western financial planning, where the rising costs of college education, unpredictably fluctuating mortgages, and a plethora of other social considerations can leave parents scurrying frantically for some kind of security for their offspring. Just 20 or so years ago, the endowment policy was en vogue, and sought to quell these many fears. Why, then, have they declined in recent years (although it is important to note, more so in the U.S. than in the U.K., where procurement of such policies is still going fairly strong)? Clearly, they have some value as an investment vehicle, due to their rising popularity in India, Malaysia and a few other places, which tells us that they are an inherently worthwhile investment to investigate.

First of all, be aware that an endowment policy is a type of life insurance policy, after all. Just like life insurance, it can have a principal, or total, value of $250,000 (for example). However, unlike the term policy and whole life policy, the actual buyer can ultimately get this principal; basically, the difference is that you don’t have to die in order for the money to be paid out. While this is beneficial to the policy holder, it might not quite be all that useful to her family, which explains the decline of endowment policies in general – in part.

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The endowment up above

the endowment up above

Endowments are generally considered to be the purview of the wealthy, and for good reason, generally. It takes a lot of money in order to set one up, such that the interest obtained by a principle amount can yield enough income to do much of anything. However, careful consideration shows that endowment funds are also quite available to the middle class, and are applicable to a wide range of functions. Consider, for example, the establishment of a small winter retreat by a family. As is usual with such a lodge, the parents might have paid the mortgage and other associated costs for the entirety of their lives, and wish to pass it on to their children.

Since the mortgage is paid off, an endowment can be established with enough of a principle amount to yield an income sufficient to take care of the direct expenses the winter home will incur (property tax, maintenance, etc.). This way, their children, now presumably with families of their own, can split time at the lodge without worrying about yearly dues. Additionally, if the parents were able to bump the principle amount of the endowment up above that which was just enough to cover associated expenses, then money can be reinvested, and the size of the endowment will grow year-after-year. This is instrumental in trying to keep pace with rising costs and inflation, as well.

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