Before you cash in that policy...

Get cash against it.
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Next week Scottish Widows Bank, the fledging banking business set up 18-months ago by its Edinburgh-based insurance parent, will start lending money against the security of insurance policies issued by most other life offices, and not just its own.

Provided the policy has been running long enough to build up some value, policyholders can either borrow and pay interest only on the loan, or repay it over a fixed period of time, like a repayment mortgage, or use the loan like a secured overdraft and borrow and repay within agreed limits by telephone. The interest rate is 9.1 per cent APR, which compares favourably with overdrafts and personal loans.

The idea of borrowing against an insurance policy is not new but has traditionally been expensive and limited to the insurer's own policies. The new facility offers policy-holders an alternative to tamely surrendering the policy to the company which issued it, for an amount traditionally well below its actual value, or selling it at auction or hawking it round the various brokers and dealers who buy and sell second-hand endowment policies, either on commission or on their own account.

The second-hand or "traded" endowment market usually offers a better deal than surrender but it still leaves a profit for the broker and a potential return of 10-13 per cent a year for anyone willing to buy the policy, take over the payments and wait for it to mature.

There is also the possibility of a windfall if the insurance company is taken over or converts to a quoted company.

Policyholders who need the money will now have the option of keeping the policy until it matures. Scottish Widows Bank plans to go into mortgage lending next year.

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