If it looks as though your policy is not on track to
repay the mortgage, one option is to throw in the towel and sell it on
the 'second-hand' market. Richard Evans reports
repay the mortgage, one option is to throw in the towel and sell it on
the 'second-hand' market. Richard Evans reports
If you have just received a "traffic light" letter from your
endowment provider warning that your policy is no longer on track to
repay the mortgage, your first instinct is probably to fire off a
mis-selling complaint.
Many people also pick up the phone and call a company that
deals in traded endowments. Many of these firms claim policyholders can
get up to 30 per cent more money from selling their policies to a third
party, rather than simply surrendering them to an insurance company. But
in fact, only a very few people will achieve this kind of mark-up.
In order to have any chance of selling on your endowment
policy it has to have been running for a third of its term - or a
minimum of five years - and have a surrender value of at least £1,000.
It also has to be a with-profits endowment. Some insurers, such as
Allied Dunbar, sold "unit-linked" plans but there is no second-hand
market for these policies.
But even if your policy meets these criteria, you may still
struggle to find a buyer. Only policies offered by certain insurers tend
to command a premium. Alan Lewis, who runs Lewkay Financial Services, a
Billericay-based independent financial adviser that specialises in
traded endowments, says the market can be unpredictable, but that it is
usually possible to obtain good valuations on policies from Royal
London, Britannic, General Accident, Co-operative Insurance, Liverpool
Victoria and Clerical Medical.
If you are unlucky enough to have an endowment with Eagle
Star, Britannia Life, Equitable Life, Life Association of Scotland,
Police Mutual, Provincial Life, Scottish Equitable, Scottish Life,
Scottish Provident and Winchester Life then you are unlikely to be able
to sell it.
This is not surprising, given that some of these companies
have inflicted the most punitive bonus cuts and the outlook for many of
these with-profits funds remains pretty bleak.
If you cannot sell your policy you have three options:
accept the surrender value offered by their insurer, keep paying the
premiums and run the risk of seeing little return on this money, or make
the policy "paid-up". This third option simply means you keep the
policy but stop making contributions - in some cases, though, this will
reduce the entitlement to the terminal bonus that is paid when the
policy matures.
But for those fortunate enough to be able to consider
trading their endowment, how should they go about it? If you contact The
Association of Policy Market Makers, an industry trade body, they will
be able to give you the names of a number of market makers.
Always call more than one market maker, as prices can vary
enormously. Although one may not want to buy your policy, another may be
willing to offer a significant premium. Remember, you need to have
details of the latest annual bonus and an up-to-date surrender valuation
from your endowment provider to hand when you ask for a quotation.
Lewis says that the amount buyers will offer in the open
market is unpredictable. He also warns that some endowment traders make
"indicative offers" rather than firm cash offers for your policy. The
indicative offers are not binding and you may ultimately be offered a
lot less, he says. So always double-check the price before selling the
policy.
Why do third parties offer more money for your endowment
than the company you bought it from? Simply because these investors are
hoping to cash in on future terminal bonuses.
As endowments are with-profits investments, the insurance
company adds bonuses every year if it thinks the performance of the
underlying investments - largely shares - justifies it. Provided these
policies are held to maturity the bonuses cannot be withdrawn,
regardless of stock market performance.
Because of this, insurers tend to err on the side of caution
when awarding annual bonus payments. Increasingly, a far greater
proportion of the total returns on an endowment comes from the terminal
bonus - the payment made on maturity. This terminal bonus reflects the
actual returns of the with-profits fund over the life of the policy,
over and above the bonuses that have been paid to date.
Of course, anyone buying a second-hand endowment gains the
full terminal bonus despite only paying premiums for a fraction of the
time that the policy has been running. Proportionately, they stand to
gain a far higher return on their money. Given the current investment
climate, terminal bonuses on many funds look set to be far lower than
they have been in recent years. This explains in part why buyers have
become far more choosy about which endowments they are prepared to buy
second-hand: they only want policies that are backed by the strongest
with-profits funds.
It is unusual for mortgage lenders to object to your selling
an endowment linked to an interest-only home loan. However, Lewis says
some lenders may insist that you switch to a repayment mortgage or that
the proceeds are paid directly to them to reduce the outstanding debt.
Don't forget that selling your policy means that you forfeit
its life cover, so you may want to arrange new life insurance. Remember
too that if you decide to sell on or surrender your policy, you can
still pursue a mis-selling claim.
endowment provider warning that your policy is no longer on track to
repay the mortgage, your first instinct is probably to fire off a
mis-selling complaint.
Many people also pick up the phone and call a company that
deals in traded endowments. Many of these firms claim policyholders can
get up to 30 per cent more money from selling their policies to a third
party, rather than simply surrendering them to an insurance company. But
in fact, only a very few people will achieve this kind of mark-up.
In order to have any chance of selling on your endowment
policy it has to have been running for a third of its term - or a
minimum of five years - and have a surrender value of at least £1,000.
It also has to be a with-profits endowment. Some insurers, such as
Allied Dunbar, sold "unit-linked" plans but there is no second-hand
market for these policies.
But even if your policy meets these criteria, you may still
struggle to find a buyer. Only policies offered by certain insurers tend
to command a premium. Alan Lewis, who runs Lewkay Financial Services, a
Billericay-based independent financial adviser that specialises in
traded endowments, says the market can be unpredictable, but that it is
usually possible to obtain good valuations on policies from Royal
London, Britannic, General Accident, Co-operative Insurance, Liverpool
Victoria and Clerical Medical.
If you are unlucky enough to have an endowment with Eagle
Star, Britannia Life, Equitable Life, Life Association of Scotland,
Police Mutual, Provincial Life, Scottish Equitable, Scottish Life,
Scottish Provident and Winchester Life then you are unlikely to be able
to sell it.
This is not surprising, given that some of these companies
have inflicted the most punitive bonus cuts and the outlook for many of
these with-profits funds remains pretty bleak.
If you cannot sell your policy you have three options:
accept the surrender value offered by their insurer, keep paying the
premiums and run the risk of seeing little return on this money, or make
the policy "paid-up". This third option simply means you keep the
policy but stop making contributions - in some cases, though, this will
reduce the entitlement to the terminal bonus that is paid when the
policy matures.
But for those fortunate enough to be able to consider
trading their endowment, how should they go about it? If you contact The
Association of Policy Market Makers, an industry trade body, they will
be able to give you the names of a number of market makers.
Always call more than one market maker, as prices can vary
enormously. Although one may not want to buy your policy, another may be
willing to offer a significant premium. Remember, you need to have
details of the latest annual bonus and an up-to-date surrender valuation
from your endowment provider to hand when you ask for a quotation.
Lewis says that the amount buyers will offer in the open
market is unpredictable. He also warns that some endowment traders make
"indicative offers" rather than firm cash offers for your policy. The
indicative offers are not binding and you may ultimately be offered a
lot less, he says. So always double-check the price before selling the
policy.
Why do third parties offer more money for your endowment
than the company you bought it from? Simply because these investors are
hoping to cash in on future terminal bonuses.
As endowments are with-profits investments, the insurance
company adds bonuses every year if it thinks the performance of the
underlying investments - largely shares - justifies it. Provided these
policies are held to maturity the bonuses cannot be withdrawn,
regardless of stock market performance.
Because of this, insurers tend to err on the side of caution
when awarding annual bonus payments. Increasingly, a far greater
proportion of the total returns on an endowment comes from the terminal
bonus - the payment made on maturity. This terminal bonus reflects the
actual returns of the with-profits fund over the life of the policy,
over and above the bonuses that have been paid to date.
Of course, anyone buying a second-hand endowment gains the
full terminal bonus despite only paying premiums for a fraction of the
time that the policy has been running. Proportionately, they stand to
gain a far higher return on their money. Given the current investment
climate, terminal bonuses on many funds look set to be far lower than
they have been in recent years. This explains in part why buyers have
become far more choosy about which endowments they are prepared to buy
second-hand: they only want policies that are backed by the strongest
with-profits funds.
It is unusual for mortgage lenders to object to your selling
an endowment linked to an interest-only home loan. However, Lewis says
some lenders may insist that you switch to a repayment mortgage or that
the proceeds are paid directly to them to reduce the outstanding debt.
Don't forget that selling your policy means that you forfeit
its life cover, so you may want to arrange new life insurance. Remember
too that if you decide to sell on or surrender your policy, you can
still pursue a mis-selling claim.
The Association of Policy Market Makers can be contacted on 0845 011 9394, or via their website.
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