You Can Get More for your Endowment Policy

Many people have with-profit Endowment Policies, often linked to their mortgage. Apart from their house, this policy is probably their most valuable possession. It is therefore important that they achieve the highest possible return for this significant investment. Yet only about one third of policies run for their full term, with early encashment bringing a lower return than that accruing to a policy that reaches maturity. 

Many policies are taken out to run over a twenty-five year period, with the aim of paying off an associated mortgage after this time. However, the reality is that most people move house much more frequently than this and many take the opportunity afforded by a move to update their mortgage arrangements. Alternatively, personal circumstances may change; policyholders may not be able to afford to continue paying premiums or may need to raise a lump sum from the policy. 

A recent analysis of the public inquiries to The Association of Policy Market Makers' (APMM) office about disposing of unwanted endowments revealed that the reasons for contemplating this step were: 

Regrettably, many policyholders believe that the only way to get anything back for their policy is to surrender it to the Life Insurance company. However, over the last ten years, a market has become established enabling many policies to be sold to investors who will pay more money for them than the Life companies can offer. That this happens is due to investors perceiving that with-profit Endowment Policies are excellent investments in their own right. 

Not all life policies are saleable; the market is in 'with-profit endowment' policies, which were the principal type of policy sold as part of endowment mortgage packages in the eighties or early nineties. To be attractive to investors, policies need to have run for at least five years and have a surrender value of close to £1,000 or more. Unit-linked and pension policies are not saleable.

Policies are passed to the investors through firms of market makers. Alternatively, policies can be sold at auction. While market makers will make a firm offer to buy using capital, and hold policies as stock until an investor is found, auctioneers act on behalf of the seller. The auction price may exceed that paid by a market maker, but the outcome is less clear, as there is no certainty what buyers will bid at any one auction and commission is paid to the auctioneer by the seller. 

However, whichever sales route is chosen, the average policyholder will be better off by some 10-15% over the Surrender Value. As the average size of a policy is £10,000, consumers gain about £1,250, or put another way, those who surrender rather than sell, often at a time of financial stringency, will lose this sum. Regrettably, at present only 40% of the saleable policies find their way to the market; the remainder are surrendered because their owners do not know of the market's existence. Many consumers do not read the Personal Finance pages of newspapers or magazines, nor do they have Financial Advisers who would let them know how much they could gain by selling rather than surrendering. This is therefore something of a problem. However, the issuing life office clearly could have a key role to play in providing information to its customers. 

While some Life Offices will disclose all the options to policyholders in a clear and straightforward manner, others sadly do not. Consumers may therefore have to find their own way to this market in order to reap its benefits. APMM (Tel: 0207 739 3949, or Fax 0207 613 2990) is the principal trade association and represents the interests of eight major firms operating in the market, who together conduct around 80% of the business. The Association and all its members are regulated by the Personal Investment Authority (PIA - soon to be the Financial Services Authority) and consumers therefore benefit from the full protection that such regulation brings. 

The Association is able to provide information on whether a particular policy is likely to be saleable and, if so, is able to arrange for three independent valuations of the policy. This is done without cost to the consumer and does not commit him or her to sell at this stage. That step is taken when an offer from a market maker is accepted and a contract is exchanged. The procedure can be set in motion by obtaining a simple brochure and application form from the telephone or fax number given above. 

In summary therefore, a market exists which allows many of those who wish to dispose of an Endowment Policy to do so, for more than the surrender value. This can be done swiftly when cash is required and in a wholly regulated environment. Consumers who surrender are currently forfeiting some £87 million per annum! 

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