Mortgage endowment policy holders continue to be torn between selling up or sticking with their policies.
Following reports that around 260,000 extra mortgage endowment
holders have received target payouts, indications are that the endowment crisis may not be as serious as first thought.
In order to help customers understand whether they have opted for the right policy, some insurers have been sending out ‘traffic light’ letters to their endowment mortgage holders to indicate whether they have either invested in a policy that will not be expected to pay their mortgage at maturity (red), may pay out (amber) or more than likely pay out (green).
For example, Prudential has improved its track record of paying out the full amounts at maturity from 44 per cent of red policies in 2003 to the current figure of just 15 per cent across its remaining 201,000 policies.
The story is repeated with other firms such as Legal and General who reported more than 55 per cent of policies were not expected to meet repayment values but under the current financial climate, the figure has now fallen to 40 per cent.
A new survey of the best and worst endowment policies conducted by Money Management magazine has shown that the final amounts policy holders will receive appear dependent on three factors: the company providing the policy, the strength of the firm’s with-profits funds, the proportion invested in bonds and equities.
The figures were based on a 25 year endowment policy, taken out by a 30-year-old male who pays £50 a month premium. Surprisingly, big names like Standard Life and Engage Mutual came in under the ‘worst performing policies’ offering final payouts of £38,338 and £39,369 respectively.
However, with smaller firms such as Sheffield Mutual, which offers a final payout of £80,256 on a 25 year policy, and Phoenix Insurance which is expected to pay out a hefty £342,949 when the fund matures over the same timeframe, it is no surprise that policy holders are confused about who to go with: large, well established companies that offer reasonable returns or unknowns that have the best-performing funds.
The advice from the Association of Policy Market Makers is to ensure that they seek professional advice before cashing in their policies. Brian Goldstein, Chairman of the APMM explains: “Once a policy holder has decided that disposing of their endowment is the right thing to do, they should investigate how much they could get by selling the policy on rather than just surrendering it back to the originating line office.”
Find out more about selling endowment
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