No surrender is the best policy

EVERY year an estimated 60,000 people surrender their with-profits policies directly back to their life company. Christopher Dobie, of Beale Dobie, one of the leading buyers of second-hand with-profits policies, says: "If only they had been told they could have sold them to a traded endowment market maker. They would have received on average pounds 1,500 more for every pounds 10,000 of the surrender value."

The Association of Policy Market Makers is campaigning among the life insurers to get them to tell policyholders that they would be better off selling their policies rather than surrendering them. Only a handful, including Clerical Medical, Friends Provident and Norwich Union, do so now.

"It's extraordinary, but under the regulations of the Personal Investment Authority, an independent financial adviser must make sure that a client is aware of the alternatives to surrender and get alternative quotes. Yet there are no rules to make the insurance companies tell people there are companies like ours that will buy their policies," says Mr Dobie.

There are now a number of companies that will buy second-hand life policies. Foster and Cranfield (0171-608 1941) holds regular auctions for holders who want to sell their policies.

There are many reasons for selling an endowment policy. Mr Dobie says: "Many prefer to do this rather than take a loan or keep the policy going as paid up. Usually, they need the money."

The second-hand market is mainly interested in with-profits policies issued by the leading life assurers that have been running for at least six or seven years and have a surrender value of at least pounds 2,000. Many buyers are interested in buying such endowments. Returns to date have averaged just under 10 per cent a year, says Mr Dobie.

The Association of Policy Market Makers (0171-739 3949) provides a list of members who will be able to advise on the value of individual policies.