Selling your endowment policy is a good way to get a large lump sum but you must take the right route or risk losing a lot of money. The brief guide covers your possible options and consequences.
If You haven't been mis sold your endowment policy then you these are the factors you should consider when selling your endowment policy. If you think your endowment policy was mis sold then you should complain to the provider about being mis sold an endowment policy and if that doesn't work then complain to the financial ombudsman .
Consequences of ending your endowment policy early:
You will usually have a cost to bear if you end your endowment policy early but this has greatly to do with:
How old the policy is: if the policy is relatively young then you might get back even less than you put into it.
If your policy is an endowment or whole of life policy
Before you decide on selling your endowment policy
you should consider:
If your current endowment policy is under-performing as an investment and where you could get a better return
The opportunity cost of selling your endowment policy. So what will you lose and will you gain more elsewhere in the same time period?
Can you afford to lose any premiums you have already paid by selling early
Getting a valuation on your policy with the Association of policy market makers
You should then Contact your financial advisor asking:
- If any tax penalties or disadvantages will result due to you selling your endowment or stop making payments.
- What the value of your policy might be worth if you do not sell if for another few years or until it ends
- If you will lose any bonuses or guarantees by selling your endowment policy early
- If you can keep the endowment policy but stop making premiums and what the consequences will be
- If there will be any other penalties if you end your endowment policy early
- What will be the market value reduction if you end it early
Remember that when asking your endowment policy holder of its future value or the maturity value they may include terminal bonuses which may be more than half of the endowment value. Terminal bonuses are not guaranteed as they are based on how well the investment performs. You should really only consider the annual guaranteed bonuses which account for up to 4% of the fund when looking at its future maturity value.
How to sell your endowment policy
If you consider all the above and you still decide it is worth selling your endowment policy early then you can either:
- Sell your endowment policy to a third party
- Cashing in the policy with your endowment policy provider
Selling your endowment policy to a third party
If your endowment policy is with profits then you should be able to sell it on the second-hand endowment market. This market is becoming less liquid and it might take a while for a sale to happen.
If you have been paying your policy for a long time this will probably be the best route for you ,especially with a “with profits policy”. You should contact an independent financial advisor for more information.
Selling your endowment policy might earn you more money than cashing in as the third party market for endowment policies tends to offer more. This also means you are able to get a lump sum quickly rather than wait years. Lump sum payments can allow you to pay off your mortgage or deal with financial emergencies.
Not all policies can be sold and you might be liable for early mortgage repayment mortgage fees if you sell your endowment policy. You should check with both your mortgage lender and your endowment policy provider.
Selling your policy will almost certainly require you to take out independent financial advice which will no doubt cost you. You can get free advice from your local citizens advice bureau.
Get the details of your policy and see which companies or people are out there ready to buy your policy. Some traded endowment companies have criteria such as the minimum term left to maturity, the type of policy and a minimum surrender value.
Cashing in your policy with your endowment policy provider
You contact your policy provider and ask them for a value on your endowment policy on the desired date you want to cash in. This is known as a surrender value.
You will usually have a Market value reduction or adjustment to your policy
You might also incur penalties, fees and exit charges. This is especially the case when you have a with profits policy
What you should ask your endowment policy provider
The above methods might not be available with your specific policy so you should contact your provider and ask them
which options are available to you
What fees are involved in ending your policy early
If there will be any reduced payouts or effects on future payouts
How long the whole process will take
Making your policy paid up
If cashing in early on your endowment policy does not turn out to be the best financial decisions then you could consider to simply stop making payments in a process called “making your policy paid up". You should ask your current endowment policy provider if you have this option available to you and what the effects are of taking this route.
What is a Paid up policy?
A paid up policy essentially allows you to stop making premium payments and treats the policy as if you have made all your premium payments. In this case however then endowment policy provider will not release any funds to you but withhold them till your policy matures. You will ofcourse get back significantly less on maturity than you would have if you continued making your usual premium payments to your policy.
If your policy includes life insurance, its value will probably be a lot smaller if you stop your payments.