The Mortgage Clinic: 'Should we cash in our endowment policy?'


'We took out a 25-year interest-only mortgage in 1987, along with a Standard Life endowment, but we no longer need the endowment to pay off the mortgage nor the life insurance aspect of the endowment policy. Should we carry on paying £42 a month for this policy until it matures in 2012, or should we cash it in now?' Sally Jenkins, Sutton Coldfield

Endowment has been a dirty word since the mis-selling scandal that began when commission-hungry salesmen promised home loan "windfalls" that never materialised. So it's a great relief to hear that you've escaped a mortgage shortfall via these notorious policies, which invested in the stock markets in a bid to pay off a home loan, and can now choose how to dispose of such a discredited product.

But while it might feel like a triumph to cash it in immediately, there's a case for keeping it as a savings policy until maturity. "As you bought the endowment policy in 1987, it's likely to be a 'with-profits' policy – these pick up annual bonuses and may also give a 'terminal' bonus, too," says Ray Boulger of broker John Charcol.

According to Andrew Montlake, of Cobalt Capital, with-profits policies, although contentious, can "grow much faster over the end stages, dependent on underlying investment trends".

So, over the next four years, you could pick up a thousands of pounds in line with the Standard Life endowment fund's performance – depending on the size of your policy, of course.

David Hollingworth, of London & Country, says the problem is that "it's impossible to know how the policy will do" and with the state of the stock market today, it's a gamble that only you can decide to take.

Melanie Bien, of Savills Private Finance, points out that "equities are in a bear market and it looks as though this could be the case for at least a couple of years".

You should receive a projection letter about the fund's performance every two years but to check on it now, write to or call Standard Life and request an update. The alternative is to cash it in now, and save yourself the £42 a month. But don't just surrender the policy to Standard Life, says Hollingworth: "It's worth exploring the second-hand policy market where a with-profits policy can be sold, often for more than the cashing in value."

You could try a company such as AAP ( www.aap.co.uk), which claims to offer up to 35 per cent more than life companies on some policies. Although you say you no longer need the life insurance (sold with all such endowments), make sure you've got enough to cover you and or your family; if you haven't, it could be a lot more expensive than 21 years ago.

Send us your questions and you could receive £50 to spend at Amazon

Foxed by jargon? Worried by the credit crunch? Email a question to mortgageclinic@independent.co.uk. We will not reveal your identity, and we cannot give specific advice. If your question is printed, you'll receive a £50 voucher from Amazon.co.uk, so you can kit out your home with anything from a lawnmower to an espresso machine. www.amazon.co.uk/homeandgarden

Independent Comment
blog comments powered by Disqus

Day In a Page

Apple admits it has a human rights problem

Apple admits it has a human rights problem

After years of complaints and workers' suicides in China the technology giant faces up to the human cost of its gadgets
Peter Moore: 'I feel guilty I'm the only one alive'

Peter Moore interview

'I feel guilty I'm the only one alive'
Sellafield faces nuclear option as overspending threatens plant's future

Sellafield faces nuclear option

Overspending threatens plant's future
Israel blames Iran for embassy bomb attacks

Israel blames Iran for embassy bomb attacks

Tehran rejects Netanyahu's 'lies' after diplomats in India and Georgia targeted
Former manager enjoying Apoel crack at the big time

Tommy Cassidy interview

Former manager enjoying Apoel crack at the big time
James Lawton: Patience may not be a virtue this time, Roman – Andre Villas-Boas looks all at sea

James Lawton: AVB looks all at sea

Abramovich's visits to training reinforce the idea of a coach feeling pressure from above and below
The 10 Best sledges

The 10 Best sledges

Not all of them require snow...
Procrastination: Not now – I'm busy

Procrastination: Not now – I'm busy

Confronting the real reasons for puttting things off can help us beat it
Fun in the sunset years

Fun in the sunset years

A new movie follows retirees moving to India for low-cost care and a culture of respect for the elderly. For many Britons, it's already a reality
Picture preview: Lucian Freud drawings

Lucian Freud drawings

Picture preview
Silent revolution at the Baftas as the French take top awards

Silent revolution at the Baftas

The Artist wins in seven categories, with Meryl Streep the other big success story
Whitney Houston: The diva who had – and lost – it all

The diva who had – and lost – it all

Nick Hasted charts the highs and lows of Whitney Houston's life
How Picasso won over (some of) the British

How Picasso won over (some of) the British

Winston Churchill and Evelyn Waugh hated his work, but Picasso provided inspiration for a whole generation of UK artists
Topshop: A Decade Of Design

Topshop: A Decade Of Design

When London Fashion Week starts on Friday, Topshop will celebrate 10 years backing its brightest young stars
John Prescott: 'My wife thought I'd just retire, but I'm not a slippers man'

'My wife thought I'd just retire, but I'm not a slippers man'

At 73, John Prescott isn't mellowing. In fact he's taking a shot at becoming a police commissioner