No surrender: try a sale instead

You can sell your endowment policy second-hand. But there are complications, says Neil Baker

Savers who no longer need their with-profits endowments or cannot afford the payments are often disappointed when they discover that the cash-in value of the policy is much less than they expected.

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.

Start your day with The Independent, sign up for daily news emails
Have you tried new the Independent Digital Edition apps?
Life and Style
Powdered colors are displayed for sale at a market ahead of the Holi festival in Bhopal, India
techHere's what you need to know about the riotous occasion
Arts and Entertainment
Larry David and Rosie Perez in ‘Fish in the Dark’
theatreReview: Had Fish in the Dark been penned by a civilian it would have barely got a reading, let alone £10m advance sales
News
Details of the self-cleaning coating were published last night in the journal Science
science
News
Approved Food sell products past their sell-by dates at discounted prices
i100
News
Life-changing: Simone de Beauvoir in 1947, two years before she wrote 'The Second Sex', credited as the starting point of second wave feminism
peopleHer seminal feminist polemic, The Second Sex, has been published in short-form to mark International Women's Day
Finacial products from our partners
Property search
Scottish Power was found to have unacceptably long call waiting times

Scottish Power hit with sales ban by regulator

The company was found to have unacceptably long call waiting times

This phoenix rose from the stage at the London Olympics. The insurer grew out of zombie life insurance funds

Phoenix Life: Chance of a refund for overcharged policyholders has risen

A retired adviser got his money back from the insurer after claiming he had been overcharged. Thousands of others may have a strong case
Expect a new wave of fishing expeditions by fraudsters now we can invest our life savings

Cold callers and your pension: watch out for dangerous boiler room scams

Sean O'Grady received a cold call last week that was much more sinister than normal. Yes, someone wants to get their hands on his pension...

Fuel poverty could claim 100,000 lives over next 15 years, warns energy charity

The NHS is currently bearing a yearly burden of approximately £1.5bn treating cold-related illnesses every winter

MPs call for Equitable Life policyholders to be paid £2.8bn owed by government

Hundreds of thousands of people's policies were hit when the mutual insurer almost collapsed at the turn of the century

The elderly woman's family discovered the mistake

DWP criticised after it left a pensioner £26,000 worse off

The Department for Work and Pensions has been slammed after a series of cock-ups left an elderly pensioner £26,000 worse off.

The FCA has today issued a consultation paper on its plans to tighten up consumer credit rules to give consumers greater protection on guarantor loans and in other areas

Payday loan companies must publish their rates, says CMA

A 20-month investigation concluded that a lack of price competition between lenders has led to higher costs for borrowers

Vulnerable consumers are defined as those with poor literacy skills, those who have caring responsibilities, people with disabilities, dementia or the old

Financial companies are not meeting the needs of vulnerable consumers, says City Watchdog

The Financial Conduct Authority said the industry needs to start thinking about solutions to these challenges

The FTSE 100 is inching closer to its record high but can it maintain these levels?

In 1999 stock markets quickly tumbled, losing many a fortune in the process

Tax-free savings: Freedom dawns for the junior savers caught in low-income accounts

The parents of six million children stuck with low-interest saving accounts worth more than £5bn will be able to move the cash from this April. But what are their options? Samantha Downes reports

How much lower will mortgage rates go?

Another day, another cut. As lenders compete to offer the cheapest deals, Simon Read asks if borrowers should jump in now or wait for further falls

Are bills ruining your family life? Try the lover's guide to coping with debt...

If you're in the red and can't find a way out, it's time to get some help. Neasa MacErlean hears that relationships will suffer unless you are open with your partner, but there are organisations that will put you on the right track and get you talking

How to complain: From retailers to energy suppliers, it's easier than you think

When companies let us down, millions of us just take it on the chin. Simon Read shows how to make your voice heard
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Evening Administrator

    £8 per hour: Recruitment Genius: This Pension Specialist was established early...

    Guru Careers: Executive Assistant / PA

    £30 - 35k + Bonus & Benefits: Guru Careers: We are seeking an Executive Assist...

    Ashdown Group: Graduate Application Support Analyst

    £25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

    Reach Volunteering: External Finance Trustee Needed!

    Voluntary post, reasonable expenses reimbursed: Reach Volunteering: Would you ...

    Day In a Page

    Homeless Veterans campaign: Donations hit record-breaking £1m target after £300,000 gift from Lloyds Bank

    Homeless Veterans campaign

    Donations hit record-breaking £1m target after huge gift from Lloyds Bank
    Flight MH370 a year on: Lost without a trace – but the search goes on

    Lost without a trace

    But, a year on, the search continues for Flight MH370
    Germany's spymasters left red-faced after thieves break into brand new secret service HQ and steal taps

    Germany's spy HQ springs a leak

    Thieves break into new €1.5bn complex... to steal taps
    International Women's Day 2015: Celebrating the whirlwind wit of Simone de Beauvoir

    Whirlwind wit of Simone de Beauvoir

    Simone de Beauvoir's seminal feminist polemic, 'The Second Sex', has been published in short-form for International Women's Day
    Mark Zuckerberg’s hiring policy might suit him – but it wouldn’t work for me

    Mark Zuckerberg’s hiring policy might suit him – but it wouldn’t work for me

    Why would I want to employ someone I’d be happy to have as my boss, asks Simon Kelner
    Confessions of a planespotter: With three Britons under arrest in the UAE, the perils have never been more apparent

    Confessions of a planespotter

    With three Britons under arrest in the UAE, the perils have never been more apparent. Sam Masters explains the appeal
    Russia's gulag museum 'makes no mention' of Stalin's atrocities

    Russia's gulag museum

    Ministry of Culture-run site 'makes no mention' of Stalin's atrocities
    The big fresh food con: Alarming truth behind the chocolate muffin that won't decay

    The big fresh food con

    Joanna Blythman reveals the alarming truth behind the chocolate muffin that won't decay
    Virginia Ironside was my landlady: What is it like to live with an agony aunt on call 24/7?

    Virginia Ironside was my landlady

    Tim Willis reveals what it's like to live with an agony aunt on call 24/7
    Paris Fashion Week 2015: The wit and wisdom of Manish Arora's exercise in high camp

    Paris Fashion Week 2015

    The wit and wisdom of Manish Arora's exercise in high camp
    8 best workout DVDs

    8 best workout DVDs

    If your 'New Year new you' regime hasn’t lasted beyond February, why not try working out from home?
    Paul Scholes column: I don't believe Jonny Evans was spitting at Papiss Cissé. It was a reflex. But what the Newcastle striker did next was horrible

    Paul Scholes column

    I don't believe Evans was spitting at Cissé. It was a reflex. But what the Newcastle striker did next was horrible
    Miguel Layun interview: From the Azteca to Vicarage Road with a million followers

    From the Azteca to Vicarage Road with a million followers

    Miguel Layun is a star in Mexico where he was criticised for leaving to join Watford. But he says he sees the bigger picture
    Frank Warren column: Amir Khan ready to meet winner of Floyd Mayweather v Manny Pacquiao

    Khan ready to meet winner of Mayweather v Pacquiao

    The Bolton fighter is unlikely to take on Kell Brook with two superstar opponents on the horizon, says Frank Warren
    War with Isis: Iraq's government fights to win back Tikrit from militants - but then what?

    Baghdad fights to win back Tikrit from Isis – but then what?

    Patrick Cockburn reports from Kirkuk on a conflict which sectarianism has made intractable