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Think hard before you sell endowment.

IF you are tempted to sell your endowment policy before it matures, think again, and think from the buyers' point of view.

Think, too, before surrendering it to your provider.

If you sell, the ultimate buyer will be an individual attracted to an investment most of whose costs have already been paid - by you!

That buyer will probably buy your endowment through a middle-man who will also earn a few pennies from the transaction.

This succession of later buyers is getting fat on the relatively steep fees you endured in the early years of the endowment, along with profits already earned.

Endowments are meant to be held over the long term, and dumping them before they mature is costly. Don't surrender an endowment lightly. Put up a good fight, and arm yourself by discovering and evaluating all your options.

A quick phone call to Neville James Investment Managers and Market-Makers - these middlemen are market-makers in what is known as Traded Endowment Policies (TEPs) - can tell you what a market-maker will pay for your policy.

"This market works on conventional with-profits endowments, not unit-linked or unitised," says Morris Bisdee of Neville James. "We can on average offer pounds 1,000 more than the surrender value offered by the life office."

If you provide Neville James with your policy's vital statistics - sum assured, commencement date, and the like - they will quickly give you a price. Your provider will also provide a price, and even if the market maker's figure is better, that does not mean that you should go down that route.

For one thing, market-makers like Neville James admit that they can only "estimate" the future value of the policy. "We cannot predict what the policy holder's final payout will be."

A Standard Life spokesperson says that policy holders could ring them or their own provider for similar information on their endowment's value.

If the customer is worried about affording premiums, and that is the only reason why they want to sell, they can consider altering the policy to a paid-up policy. The benefits they already accrued will remain payable to them.

You can't do this with all policies. You must check the contract. For example, some contracts allow premium holidays, which is another option. They may also consider a loan.

"Waiver of premium" holidays allow you to suspend payment for a specified period of time. When you resume paying, you have to pay extra to compensate for the waiver period, but this additional cost should more than repay itself if it enables the endowment to run to maturity.

Buyers of TEPs are attracted because of the low risk. The capital is virtually ensured. Although endowments look and smell like insurance policies, they are actually investments, and the risk of a TEP is low because of the bonuses that the policy has paid during the first 10-15 years - bonuses that would go to the original policy holder on maturity.

Annual bonuses are extremely secure. As their name indicates, they are paid annually. These annual payments are put into a pot and they stay there.

They are not shifted by the rising and falling tides of the stock market or anything else. The provider cannot dip into them to counterbalance hard times in other parts of their business.

Policies taken out prior to March, 1984, have complicated tax implications. Even the uncomplicated ones are complex. Independent financial advice is highly recommended for anyone considering surrendering an endowment, including divorcing couples, some of whom may discover that surrender is not their only alternative, at least for their endowment.
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Author:Liebman, Robert
Publication:Sunday Mercury (Birmingham, England)
Date:Feb 28, 1999
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