re-endowment policy

In that case it sounds very much as though you have a with profits endowment, and not a unit linked one.

You should still consider whether you need the life cover (plus any other benefits) the endowment gives you, and you should still consider your tax position. However, your original question - "how do I work out the rough annual interest for comparison purposes" - is rather more difficult to answer for a with profits endowment.

With profits endowments come in two main flavours - "full with profits" and "low cost with profits" - and you should work out which you have before you make any decisions about it. (Given the premiums you pay I'm pretty certain yours will be low cost, but if you can't find any reference to a basic sum assured or similar in the paperwork then I may be wrong).

You say your endowment was taken out "for £70k", so I assume that £70k is both the target amount of the policy and the amount the policy would pay out if you died while it was in force. Your policy may refer to a "sum assured" of £70k.

Low cost endowments also have a "basic sum assured", which will be typically less than half of the life cover provided - for a £70k policy you might have a basic sum assured of £25k or £30k. Let's assume that the basic sum assured of your policy is £X. This means that if:

- you survive until the end of the term

- you continue paying monthly premiums until the end of the term

- you don't make any alterations to the policy

- nothing unforeseen happens like the life office collapsing then the life office promises that at the end of the term, it will pay you £X plus £10k (as you say that £10k of bonuses have already been declared). It might also pay you a terminal bonus and other bonuses. Historically terminal bonuses on with profits policies have been rather large, but as you are probably aware recently they have declined sharply.

In other words, it sounds as though* as of now, the life office promises you that at maturity it will pay you the basic sum assured of your policy plus the £10k bonuses declared to date. Continuing to pay into the policy also gives you a chance of receiving further bonuses and a terminal bonus.

When you say that your policy has a "value" of £24.6k, do you mean that that's the surrender value the life office gave you?

Values of with profits endowments are to some extent guesswork. Essentially, at the moment you have a promise from the life office that in 2016 it will pay you £X +£10k, plus a chance of other bonuses. Clearly if you break the contract now the firm won't pay you £X + £10k - firstly its promise that it would pay that money was conditional on you paying the rest of your premiums, and secondly the effect of growth and inflation mean that to get £X +£10k in 2016 you would need rather less than that today. So, the value of your endowment (by value I mean "how much will somebody pay for it) is really the value of that promise from the life office.

The surrender value of your policy - the amount the life office will pay you if you cash it in - is usually less than the value of the policy on the TEP (traded endowment policy) market. If you try to sell your policy, you will find out fairly quickly how much it is "worth" in the sense of "how much will somebody pay for it".

Surrender values can change on a day to day basis - although bonuses once declared cannot be taken away, the life office is under no obligation to give you any part of that bonus until 2016. Usually a surrender value will include some proportion of bonuses already declared (and sometimes a proportion of the current terminal bonus). However, the life office is free to vary that proportion, with obvious effects on the surrender value. Trying to use past surrender values to work out the annual growth of your policy is therefore something of a pointless exercise. (cf unit linked policies, where using previous unit prices to determine growth is a perfectly reasonable strategy).

In my view the best way to look at the performance of a with profits policy is to look at the performance of the underlying fund. The life office should be able to give you that information if you ask for it (or tell us which life office your policy is with / which fund it's invested in and somebody might be able to point you in the right direction).

So far as your choices now go, the fact that your policy seems to be low cost with profits gives you an extra choice. For a unit linked policy, your choices would effectively have been: surrender, keep paying, amend the premiums, or make the policy paid up. You may find that you have the additional choice of selling the policy on the TEP market.

Hope the above wasn't too confusing/repetitive!

Mouse.

*Don't take this as gospel - I haven't seen your policy documents and I'm not even certain what kind of policy you have. Contact the life office and/or an IFA if you are unsure.

Not at all. Many thanks for the considered and thorough reply. Yes the 24K was what they'd said they'd give me. I shall away to delve further. Cheers me dears BB

In that case it sounds very much as though you have a with profits endowment, and not a unit linked one.

You should still consider whether you need the life cover (plus any other benefits) the endowment gives you, and you should still consider your tax position. However, your original question - "how do I work out the rough annual interest for comparison purposes" - is rather more difficult to answer for a with profits endowment.

With profits endowments come in two main flavours - "full with profits" and "low cost with profits" - and you should work out which you have before you make any decisions about it. (Given the premiums you pay I'm pretty certain yours will be low cost, but if you can't find any reference to a basic sum assured or similar in the paperwork then I may be wrong).

You say your endowment was taken out "for 70k", so I assume that 70k is both the target amount of the policy and the amount the policy would pay out if you died while it was in force. Your policy may refer to a "sum assured" of 70k.

Low cost endowments also have a "basic sum assured", which will be typically less than half of the life cover provided - for a 70k policy you might have a basic sum assured of 25k or 30k. Let's assume that the basic sum assured of your policy is X. This means that if:

- you survive until the end of the term

- you continue paying monthly premiums until the end of the term

- you don't make any alterations to the policy

- nothing unforeseen happens like the life office collapsing then the life office promises that at the end of the term, it will pay you X plus 10k (as you say that 10k of bonuses have already been declared). It might also pay you a terminal bonus and other bonuses. Historically terminal bonuses on with profits policies have been rather large, but as you are probably aware recently they have declined sharply.

In other words, it sounds as though* as of now, the life office promises you that at maturity it will pay you the basic sum assured of your policy plus the 10k bonuses declared to date. Continuing to pay into the policy also gives you a chance of receiving further bonuses and a terminal bonus.

When you say that your policy has a "value" of 24.6k, do you mean that that's the surrender value the life office gave you?

Values of with profits endowments are to some extent guesswork. Essentially, at the moment you have a promise from the life office that in 2016 it will pay you X +10k, plus a chance of other bonuses. Clearly if you break the contract now the firm won't pay you X + 10k - firstly its promise that it would pay that money was conditional on you paying the rest of your premiums, and secondly the effect of growth and inflation mean that to get X +10k in 2016 you would need rather less than that today. So, the value of your endowment (by value I mean "how much will somebody pay for it) is really the value of that promise from the life office.

The surrender value of your policy - the amount the life office will pay you if you cash it in - is usually less than the value of the policy on the TEP (traded endowment policy) market. If you try to sell your policy, you will find out fairly quickly how much it is "worth" in the sense of "how much will somebody pay for it".

Surrender values can change on a day to day basis - although bonuses once declared cannot be taken away, the life office is under no obligation to give you any part of that bonus until 2016. Usually a surrender value will include some proportion of bonuses already declared (and sometimes a proportion of the current terminal bonus). However, the life office is free to vary that proportion, with obvious effects on the surrender value. Trying to use past surrender values to work out the annual growth of your policy is therefore something of a pointless exercise. (cf unit linked policies, where using previous unit prices to determine growth is a perfectly reasonable strategy).

In my view the best way to look at the performance of a with profits policy is to look at the performance of the underlying fund. The life office should be able to give you that information if you ask for it (or tell us which life office your policy is with / which fund it's invested in and somebody might be able to point you in the right direction).

So far as your choices now go, the fact that your policy seems to be low cost with profits gives you an extra choice. For a unit linked policy, your choices would effectively have been: surrender, keep paying, amend the premiums, or make the policy paid up. You may find that you have the additional choice of selling the policy on the TEP market.

Hope the above wasn't too confusing/repetitive!

Mouse.

*Don't take this as gospel - I haven't seen your policy documents and I'm not even certain what kind of policy you have. Contact the life office and/or an IFA if you are unsure.