Questions About Selling Endowment Policies
Why are endowments sold ?
It was only a few years ago that endowment policies were the
recommended choice of investment to build up a fund to repay the
mortgage debt at the end of the mortgage term. Critics will argue
that the endowment policy wasn't bought so much as sold to the
customer because of the high commission the salesman or his company
received. The endowment policy was regarded as a reliable way to pay
off the mortgage, and further more return an excess of cash at
maturity. This may have been true at the time but in hindsight is
became clear that the growth of the funds in the endowment policy
didn't perform as well as forecast, and shortfalls were predicted.
Only the interest on the mortgage was paid each month, and an
endowment policy was set up alongside with the aim of building up
the necessary fund needed to clear it and a period of 25 years was
the normal term it was set up for.
When deciding on how much to put aside for the endowment policy each
month (the premium amount), someone had to take a calculated guess
at the how well the fund would grow during the interim period
(usually 25 yrs) and the guidelines were set down for this by the
then Financial Services Authority (FSA)
Unfortunately the FSA allowed the issuing insurance companies the
option of what growth rate to assume when setting the regular
premiums needed to achieve the aim, and the companies tended,
without exception, to chooses the higher growth rate (or at least
use historical data of growth rates achieved) to back up their
However, actual performance has not been as predicted leaving many
endowment policy holders receiving "Red Letter" warnings telling
them of a potential shortfall.
Given the shock of receiving such a warning letter (normally
after the first 10 years of the endowment policies life) the knee
jerk reaction has been to "stop throwing good money after bad" and
cancel the payments whilst changing the mortgage to a repayment
type, which guarantees to pay off the mortgage.
At this point the endowment policy holder inevitably contacts the
insurance company to see what they will get if they "cash the
endowment in early" and become of the alternative
option of selling the endowment instead to an endowment trader.
This website enables any with profits endowment policy holder the
ability to enter the minimum of details to send to the buyers to get
their estimate of the policies value and make an offer above and
beyond the insurance companies offer if the policy seems suitable.
Extracts From Government Publications
CP 106 "The Personal Investment Authority (PIA) issue
guidance (Regulatory Update 85) in March 2001, asking provider firms
to take steps to ensure that policyholders who were considering the
surrender of a life policy were informed that they might be able to
trade their policy instead."
COB 6.5.50R(5) "requires a firm to ensure that the
policyholder is made aware of the existence of the secondary market
and how he might access it."
"If you have a with-profits endowment policy, you may be able to
sell it on the second-hand endowment market.
If you’ve been paying in for at least seven years, you’ll probably
earn more if you sell a with-profits policy rather than cashing it