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If you’ve recently received your endowment plan annual statement you may
have been left feeling disappointed and thinking “Why did I bother?”,
especially when the value of the plan is not much higher than the annual
statement last year. Unbelievably, however, in some cases, the plan may not
have increased in value at all.
So, the question is, what do you do? There are various choices for those
with endowment policies that continue to disappoint.
Firstly, look at the bigger picture. It is important that you assess the
continued suitability of your endowment in the light of its total
performance over the term of the plan and not just for the previous few
years. If the endowment is more or less on target to pay off your mortgage
at maturity and it's only in recent years that performance has been
particularly poor, then waiting out what is hopefully a short-term, dip in
performance may well be the best thing. |
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Alternatively, investigate other investment funds within the
range offered by your insurance company. If your insurance
company offers a wide range of investment funds you may wish
to look at other funds offering greater prospects for
investment growth. You will, however, have to balance risk
with reward;
after all, it’s no good investing in a fund you are
uncomfortable with, and is very volatile just because it has
had good performance. You have to match the level of risk
that you are willing to take with the level of returns that
you require. If the level of risk required is above that with
which you are comfortable, this option probably isn’t for
you.
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Another option would be to increase your contributions or set up a
separate additional investment, such as an ISA or unit trust.
You could also look at the other options available to you with regard to
your mortgage. If your plan has no chance of being able to pay off your
mortgage, look at the option of switching part or all of your mortgage to
repayment. This may cost you more initially but will guarantee that part
of your mortgage is paid off.
If you do change your mortgage to repayment, then you can either surrender
your endowment policy back to the insurance company or you may be able to
sell it on the second hand market.
If you have a unit linked endowment, your only option will be to surrender
it to your insurance company and the value that you get will be the value
of the units you have accumulated on the day you surrender your plan.
If you have a traditional with profits policy, your options extend to
selling it on the second hand market. Surrendering it back to your
insurance company could well mean that not only do you benefit from any
terminal bonus but the insurance company apply what is known as a “market
value reduction” and this is particularly the case in times of poor
investment returns. A market value reduction will reduce your surrender
value to more accurately reflect the value of the underlying assets. What
this means in practice is that you may not get all the bonuses that have
been added in the past.
There is vibrant market in second hand endowment policies which can be
bought by private and institutional investors alike. The amount received
by selling your with profits endowment can be as much as 45% higher than
the surrender value. However, not all policies are saleable and the amount
that you receive for your endowment will be dependent upon factors such as
which insurance company the plan is with, monthly premiums, bonuses to
date and length of term left to run.
Daniel Collins writes on a number of topics on behalf of a digital
marketing agency and a variety of clients. As such, this article is to be
considered a professional piece with business interests in mind. |
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