No surrender: try a sale instead
You can sell your endowment policy second-hand. But there are complications, says Neil Baker
Saturday 14 December 1996
It is sometimes possible to get more from the policy by selling it in a growing second-hand market instead of surrendering it to the company it was bought from. But after a court ruling last week, anyone considering such a move needs to shop around much more carefully.
The ruling, pushed through by the Office of Fair Trading, removes the 3 per cent ceiling on commissions currently paid to advisers who sell the policies on their clients' behalf.
The OFT argues that such a maximum commission restricts competition and works against a client's best interests. However, advisers argue that the effect of the OFT's move will be to force prices up, not down.
David Beale, a partner in Beale Dobie, a leading firm of second-hand endowment buyers and sellers, says: "Free competition among intermediaries usually leads to increased rather than reduced commission levels, so customers will ultimately lose out."
With-profits endowment policies are usually used to help pay off a mortgage. But only a third of policies taken out actually reach maturity. Some 30 per cent are cancelled in the first three years and 40 per cent are surrendered or sold.
If a policy is surrendered, the amount the holder gets back from the life company varies. But endowment policies are structured so that much of the value of the policy does not come until the last few years before it matures. This is partly because such policies attract heavy initial charges. Also a large part of a policy's final value is made up of a terminal bonus, paid only at the end of its life.
According to the Association of British Insurers, endowments worth pounds 5.5bn are surrendered each year. Not all of these are with-profits policies - the sort that are traded second hand - although an estimated pounds 700m worth might be.
Peter Thorne, of financial advisers Parker Jerome, says the extra amount raised depends on the individual policy but it could be around 15 to 20 per cent above the surrender value. Because they already have a guaranteed minimum value and initial charges have been paid off, second-hand policies are seen as a good buy.
Companies such as Beale Dobie, SEC Group and Absolute Assigned Policies organise a market, matching people who want to sell policies with investors who want to buy.
In the past, these market-making companies have agreed among themselves that they would not pay more than 3 per cent to financial advisers who bring in clients. But the OFT believes that a maximum commission would actually operate as a fixed standard. Its court action has led to market- makers giving an undertaking not to set commission levels in future.
David Beale says: "Our view is that 3 per cent is very reasonable but anything above that level ought to be questioned by the policyholder."
Policyholders aiming to sell their endowments must now ask their adviser what commission they are getting and shop around for advice if it seems too high.
Max Rosen, managing director of SEC, another endowment buyer and seller, says a further option is to by-pass financial advisers and go to market- makers directly. About 50 per cent of policyholders do this at present. Those tempted to follow this route should remember that market-makers are not able to give advice.
Selling a policy in the traded endowments market might not always be the best option. If you need money quickly or if you cannot afford to keep up payments, there are other alternatives:
Take out a loan against the policy. Even if you do not pay the loan off, the policy's final value, after all charges have been paid off, might be more than the current surrender value.
Make the policy "paid up". This means you stop paying premiums. The date of the payout stays the same and you will receive less.
If you still need a cash lump sum, surrender or sale are not the only options. Companies such as Foster & Cranfield regularly auction policies.
Association of Policy Market Makers: 0171 729 8854
Foster & Cranfield: 0171 608 1941
For an independent financial adviser near you, call IFA Promotions: 0117 971 1177.
23 January 2015 08:00 PM
I had dinner with the pensions minister Steve Webb this week. There was a wide-ranging discussion about the new pensions freedoms starting in April, and changes to the state pension. Crucially, I also got to ask Mr Webb whether he had any plans to have another look at the injustice that is frozen pensions.
23 January 2015 08:00 PM
23 January 2015 08:00 PM
While the health of the economy is not insignificant, Mark Dampier finds it incredibly unpredictable in terms of its impact on the stock market
21 January 2015 12:32 PM
A new free app is aimed at the three-fifths of Brits who have never switched supplier
20 January 2015 09:34 AM
Regulator’s investigation into the market found that around £160bn was held in easy access savings accounts that pay interest lower or equal to BoE base rate
17 January 2015 12:00 AM
Simon Read: Information is power. And it's in the wrong hands when people are cold-called by companies that know they're in debt
17 January 2015 12:00 AM
In debt? You're likely to be targeted by unscrupulous companies that hope to profit from your misfortune. They may try to pretend to be your friend by offering what they call "help" – but almost certainly that help will come with a cost and leave you worse off than you were before they got in touch.
17 January 2015 12:00 AM
In less than three months' time radical changes to pensions will take effect, providing investors with more freedom. Yet for those who prefer to make their own investment decisions, the choice of funds available is overwhelming. And an income drawdown account is also not particularly easy to manage.
15 January 2015 12:23 PM
The minimum amount for which you can be forced into bankruptcy is being raised from £750 to £5,000
14 January 2015 08:55 AM
A shock report reveals that fuel poverty is affecting desperate families – and their children
14 January 2015 08:59 AM
Most people are too confused to know how to use their pensions for a secure income
10 January 2015 12:00 AM
Simon Read: Inflation is riding the slow train. So why have we been given a one-way ticket to travel on the fares express?
10 January 2015 12:00 AM
I struck a chord with many of you when I wrote a piece earlier this week about rising train fares. It seems there is an army of travellers who feel they've been ripped off by increased transport costs.
Dirty tricks in a divorce can cause some nasty surprises
10 tips for taking out a personal loan
Simon Read: Frozen in time - the expat British pensioners who deserve a better deal
Donald MacInnes: My wasted hours in the retail deserts of Dixons-Carphone
Pension firms must ask consumers more questions, says City Watchdog
- 3 Amal Clooney gives excellent response to fashion question at European Court of Human Rights
- 4 A bottle of wine a day is not bad for you and abstaining is worse than drinking, scientist claims
- 5 Isis publicly behead man in Syrian town square for 'insulting Allah' as he screams for help
9 reasons Greece's experiment with the radical left is doomed to failure
'We would evict Queen from Buckingham Palace and allocate her council house,' say Greens
Greece elections: Syriza and EU on collision course after election win for left-wing party
British Muslim school children suffering a backlash of abuse following Paris attacks
British grandmother Lindsay Sandiford faces execution by firing squad in Indonesia
Liberal Democrat minister defends comments suggesting immigration causes pub closures
iJobs Money & Business
£13000 per annum: Recruitment Genius: This Pension Specialist was established ...
£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...
£25000 - £35000 per annum: Recruitment Genius: A Technical Report Writer is re...
Competitive salary & benefits!: MBDA UK Ltd: MBDA UK LTD Indirect Procurement...
Day In a Page
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village