Surrendering endowment policies is increasing in popularity as the
red and orange warning letters are sent out by the endowment life
assurance offices to their respective policy holders. But how will
surrendering the endowment policies effect the policy holder directly ?
The immediate result is that the life assurance attached to the policy
is terminated, and should the policy holder die, nothing is paid out.
At the same time, what was set up as the repayment vehicle to pay off
the mortgage (assuming the policies being surrendered were attached to
the mortgage) is no longer in place, and the mortgage is effectively now
an "interest only" mortgage.
The money received for surrendering the endowment policies will be
dependent on how well the funds have performed. In the case of unit
liked policies the value is determined by reference to the bid price of
the underlying units at the time. In the case of "with profits"
endowment policies it is a little more complicated, and the actuaries
have to calculate a surrender value figure and take in to account the
early departure from the with profits fund and whether any "market value
adjustment factor" has to be applied.
With profits endowment policies have traditionally enjoyed a
"terminal bonus" which can make up a substantial amount of the final pay
out, and surrendering endowment policies of the with profits type can
mean that the life office has to take in to account the early departure
of the policy holder and adjust any pay out accordingly.
If someone is surrendering their with profits endowment policies back
to the life assurance office, they should as a minimum see if they can
get more money by selling the endowment policies instead.
They should also look at replacing the lost life cover, and
talk to their mortgage lender, or financial advisor, about switching to
a repayment mortgage (capital and interest) or other method of repaying
the debt.
Surrendering endowment policies can never be advised, neither can
selling them, and professional advice should be sought. However, if a
policy holder is determined to go down the route of surrendering
endowment policies, then they should at least use the policy valuation
form, to see if an endowment policy trader would be interested in buying
the policy to add to his portfolio. More money can be earned this way
than simply surrendering.
"Selling endowment policies is
no more complicated than surrendering endowment policies"
