Trading, Surrendering or Cashing Endowment Plans

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Trading, Surrendering or Cashing Endowment Plans

Trading endowment policies

Many people who have an endowment mortgage and fall under financial pressure simply cash their investment plan… and in many cases lose out financially. However, to the dissatisfied endowment policy holder there are actually numerous options open. Taking financial advice could be an idea, but the company offering your endowment should fill you in on all the options available to you, including trading the policy in.

What happens when I fill out an Endowments enquiry form?

1. We pass your details to a specialist company called AAP, who are experts in selling endowment policies.

2. They write you a letter asking for your authority to contact your endowment office.

3. AAP secure the best price possible for your policy and give you a quote.

4. Endowments quotes are free and no-obligation.

What does trading an endowment plan mean?

Trading an endowment plan means that you sell the policy on to a third party. This is usually a specific traded endowment company, and these companies are sometimes known as market makers. The new owner of your endowment policy will take over the repayments and pay the premiums. The assurance, however, remains on the life of the previous policyholder. When the previous policyholder dies, the new owner receives all or part of the money. In some cases, trading your endowment policy can be the most viable financial option.

However, before you take this step it is worth taking advice from both the company that offers the plan and from an idependent financial adviser. The firms that advise on buying or selling endowment policies that are with-profits are regulated by the FSA (Financial Services Authority.)

Surrendering an endowment policy

Most endowment policyholders surrender, trade or cash in their endowment policy before the end of the full term. Reasons for this include dissatisfaction with the policy, need to generate capital, change of mortgage or divorce. Surrendering your policy, although it is common, should really only be undertaken as a last resort.

Most with-profit endowments grow quickly near the end of their term, particularly if there are terminal bonuses. Cashing in by surrendering the policy can lead to a greatly diminished sum, and you may be charged ‘early surrender penalties.’

Surrendering (which is usually not an option until a set qualifying period is reached) simply means realising the value in the policy and stopping to pay premiums. The contract of the policy then ceases, as do all benefits.

Selling an endowment policy

Many people are unaware that this is even an option. A traded endowment policy is a with-profit endowment policy sold by the original policyholder to another investor. The endowment policy is then legally assigned to the investor, who takes responsibility of the premiums. The life assurance element remains the same, but the benefits are paid to the new holder.

The price obtained on the policy market could be as much as 35 per cent higher then the surrender value, although experts estimate that on average it is approximately 15 per cent higher. Many investors regard these products as low risk investments, and some believe they compare favourably to others of a similar type.

The policy market is a large one, and companies throughout the UK purchase and re-sell to investors throughout the world. In many areas, market makers (as TEP sellers are called) cannot meet demand.

Some endowment policyholders will prefer to sell their policy to a third party rather than cash it in. There are many people willing to buy second-hand, and this could generate more money than surrendering the policy.

Other options

Holding on. Generally, those endowment policies that reach maturity perform well for the policyholder. Unless there is no other alternative, it can be worth holding on even if the policy seems to be under-performing.

Loan-back. A loan-back facility allows you to solve cash-flow problems by borrowing from the insurer. The loan will be secured against the policy, and must be paid in full with the final proceeds of the policy.

Paid-up policy. This occurs when no more premiums are paid into the plan. Cover remains, but the charges are deducted from the value of the fund. The value of your fund will gradually decrease over time, until no further benefits are payable. Any surplus funds left when the policy matured are paid to you.

Premium holiday. A premium holiday allows the policyholder to take a break from paying off the premium. In order to establish whether this is a possibility, you must speak to your insurer or life office.

Further information

If you would like more information, please contact the Association or Policy Market Makers (APMM) at www.apmm.org

Association of Policy Market Makers
The Holywell Centre
1 Phipp Street
London
EC2A 4PS