How to put a value on your policy ENDOWMENTS

An estimated 1.4 million policyholders sell or surrender their endowment policies early each year, either because they have moved home or because they have found an alternative way of paying for the mortgage.

For millions of savers, those home purchase-linked endowments are already likely to constitute the largest investment they have made other than into their pensions.

Getting the best price at surrender, or when the policy is sold to another investor, is important. Similarly, buyers of second-hand endowments also need a guide to good value.

Kingfisher Asset Management, a fund management firm, this week published a guide to the policies provided by 35 insurance companies. It compares surrender values of 25-year policies at various stages and the terminal bonus content of maturing policies.

The value of each company's £50 a month, 25-year endowment policy, surrendered after 10, 15 and 20 years, is expressed as a percentage of the current maturity value of 10, 15 and 20 year policies with the same monthly premium.

The lower the surrender value as a percentage of current maturity value, the greater the scope for trading in the mid-term market.

Similarly, policies with high surrender values have limited appeal to buyers who would see any profit on maturity eaten away by dealing charges.

Companies which pay generous 20-year surrender values compared to 20- year maturity payouts include Prudential, Equitable Life, London Life, Commercial Union, Standard Life, London and Manchester, Eagle Star and Sun Alliance. Much the same names crop up over 10 and 15 years.

"What makes a policy popular is the difference between expected payout at maturity, which may not always be great, compared to the percentage surrender level, especially if that amount is much less," said Ned Cazalet, Kingfisher managing director and author of the guide.

Linked to this is the terminal bonus content of a maturing endowment policy. There may be a connection between terminal bonus at maturity and payout on surrender. The higher a terminal bonus, the less one may receive at early surrender.

There are exceptions to this. Standard Life pays out large proportion at surrender relative to maturity, but its terminal bonus also forms a high proportion of the final maturity value.

The tables give an indication of how worthwhile it may be to keep paying premiums into a policy. For example, if the terminal bonus is 61 per cent of the entire maturity proceeds, as with Sun Life of Canada, or 59 per cent for Pearl or Standard Life, it makes sense to stick with the policy where possible.

"Policyholders can work out roughly whether a particular policy is worth keeping to maturity, selling or surrendering," Mr Cazalet said.

Terminal bonus content of Surrender value

maturing endowment generosity* - 1994

policy (%) 1994

Office 10 Yr 15 Yr 20 Yr 25 Yr 10 Yr 15 Yr 20 Yr

AXA Equity & Law 21 43 55 61 69 66 83

Britannia Life 12 31 46 n/a 80 76 78

Britannic 15 35 51 56 69 71 77

CIS 29 46 60 65

Clerical Medical 18 39 48 56 67 73 82

Commercial Union 17 17 19 29 70 77 84

Co-operative 69 65 76

Eagle Star 14 25 32 37 83 85 82

Equitable Life 29 45 51 54 94 91 92

Friends Provident 24 38 48 55 74 71 76

General Accident 21 32 47 51 64 67 72

Guardian 0 18 41 49 75 67 74

Legal and General 18 26 37 47 75 76 83

London and Manchester 13 28 40 48 85 90 91

London Life 11 25 40 50 79 83 95

MGM nd nd nd nd nd nd nd

National Mutual 21 37 48 57 66 69 79

Norwich Union 24 33 38 41 76 78 81

NPI 18 30 44 55 81 80 77

Pearl 22 35 52 59 69 65 69

Provident Mutual 21 33 42 50 69 65 69

Prudential 17 33 42 50 84 85 88

Refuge 20 35 52 58 61 51 52

Royal Life 11 22 45 48 74 69 50

Royal London 31 42 49 51 68 66 75

Scottish Amicable 19 37 48 57 70 65 72

Scottish Equitable nd nd nd nd nd nd nd

Scottish Life 17 29 50 57 67 66 76

Scottish Mutual 22 40 51 59 70 57 46

Scottish Provident 18 32 42 51 80 77 78

Scottish Widows 23 38 49 51 77 87 81

Standard Life 19 38 50 59 81 79 86

Sun Alliance 20 32 39 49 84 86 92

Sun Life 20 31 40 57 70 69 74

Sun Life of Canada 23 35 55 61 72 76 72

Wesleyan 21 40 56 63 65 57 54

High 31 46 60 65 94 91 95

Low 0 17 19 29 61 51 46

Average 19 33 46 53 74 73 76

* Surrender value of a 25-year endowment policy after 10, 15, 20 years, as a percentage of the payout achieved on a policy with the same premium maturing after the same durations.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

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