Should I Sell My Endowment Policy

Selling your endowment policy is a big step - something that you shouldn't rush into without a thorough financial analysis of the pros and cons of selling. Once your policy is gone - its gone - your capital gains or losses are crystallized - you can't change your mind with this type of thing. In order to avoid living to regret the day you decided to surrender endowment policy - you should have written down exactly why you decided to sell and what assumptions you made that led you to that decision. You can't control the future and you certainly can't control what happens to the stock market, inflation, interest rates and other key financial indicators. All you can do is assume that everything will change and take the informed decision of the moment.

So lets look at the essential steps in the decision making process:

• why do you want to sell you endowment policy?
• what will selling cost you?
• what are your alternatives?
• which is the best decision.

Lets start with the key question:

Why Do You Want to Sell Your Endowment Policy?

• Most people want to sell because they need the cash now or they want to sell the house the policy is tied to. Common reasons for selling a policy include:
• facing foreclosure on a property
• needing to move house because of divorce
• needing to move because of job transfer
• needing cash for marginal calls on shares, business investment or other reasons
• can't afford the regular repayments anymore - probably because you've lost a job
• worried that the policy won't pay of the mortgage
• want to repay your mortgage

All of these reasons come down to three key reasons to sell your endowment:

• need a cash injection fast
• can't afford to keep payments up
• don't think the policy is performing adequately.

If you need cash fast either to repay the mortgage and sell the house or for other reasons you should look at your costs and risks associated with it. The main issue with endowment policies is that if you have not had the policy for long you may well get little return on your payments - most of your payments will have gone to the front-loaded fees and charges. So your first step is to find out just what value your endowment policy will have. Will the cash be sufficient to clear the mortgage, pay the debt, setup the business? Its better to know this before you go down the road of selling. You may decide to look elsewhere for the finance and retain the policy in the hope that it will be worth more a few years down the line.

The second reason that people sell endowment policies is because they cash flow crises and they can't afford the payments for the policy. The point here to remember is that if you can't afford the repayments on an interest only mortgage, which is what an endowment policy is, you certainly won't be able to afford a regular balance reducing mortgage. In essence you can't afford the property that you have the endowment policy on. You really have only three options:

• increase your income
• rent the property out
• sell the property

If you have a cash flow crises the question is if its short or long-term. If you have just been made redundant the question is what are your chances of getting another job and whether that job will pay as much as the old one did. If you rent the property out you may be up for additional costs involved with a buy-to-let mortgage so check this out. An alternative may be to take in borders if you have spare room, or start charging the teenagers if you don't!

You should consider both of these options seriously before you decide to sell the property, if you do that the obvious question is where are you going to live and can you afford those costs.

Finally those with endowment policies may review their figures and decide that the time has come to cut their losses. Endowment policies were popular in the 1980s when the investment landscape was a great deal different from what it is today. The policies usually had an assumed growth rate of 7.5% and were designed for a high inflation environment. For most of the last 15 years neither of these assumptions have held up well and this is where the concerned policy owner may have come to realize that the value of the policy is not going to be sufficient to cover the repayment of the mortgage at the end of the policy's life.

Whatever the reasons that you are considering selling your endowment policy - the key point is that do your research, talk to your advisors, but at the end of the day its critical that you make your own decisions and hold or sell your endowment policy after seeking the correct advice.