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MONEY COMMENT
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In two recent articles, Tackling Failing Endowments and How To Survive Battered Bonuses, we looked at what you can do if your mortgage endowment has turned into a damp squib. Most endowments are invested in one of two types of funds: unit-linked (UL) or with-profits (WP). UL endowments are a bit like a unit trust managed fund with a life assurance policy wrapped around them. As these are largely invested in shares, their values have fallen heavily in line with the stock market since January 2000. WP endowments invest in a wider range of assets: shares, property, bonds and cash. However, in order to make their returns less volatile, they hold back some money in the good years to boost bonuses in the bad years. Nevertheless, thanks to huge bonus cuts by life assurers, WP policies aren't looking too clever as well. In the third edition of our highly acclaimed UK Investment Guide, we describe one savvy Fool's quest to sell his under-performing mortgage endowment (see pages 212-214). For those Fools unlucky enough not to have received this book last Christmas, here is a quick guide on how to rid yourself of your ailing endowment: 1. Before you even think about selling, read the Financial Services Authority's guide to mortgage endowments. If you have the slightest suspicion you may have been mis-sold your policy, making a formal complaint is likely to be your best course of action. Read more. 2. Next, visit the Association of Policy Market Makers website to learn if your endowment is suitable for sale. Broadly speaking, it should be a WP policy (not UL); been running for the greater of five years or one-third of its original life; and have a surrender value of at least £1,000. 3. As mortgage endowments are typically arranged over 25 years, most will need to have been in force for over eight years to be saleable. 4. Shop around: get quotes from all the Traded Endowment Policy (TEP) traders you can find (see the list below, plus search the web for "Traded Endowment Policy traders"). Give them the information they need and then play them off against each other until the sum you're being offered is a fair approximation of what you want to receive. Go for your best deal, not your first offer! Read another Fool's tale here. 5. Try auctioning your policy with H E Foster & Cranfield, making your reserve price the highest price you received from the TEP traders. Check carefully how much the auctioneer's charges will be as it will often be flexible and willing to negotiate. 6. If you need to continue your life cover, buy a cheap term assurance policy. For a low-cost, tax-free, long-term investment to pay off your mortgage, consider an index-tracker ISA. Alternatively, divert the monthly amount saved from selling your endowment into paying down your mortgage faster (but watch out for penalties and check your lender will credit the overpayments straight away -- some cheeky lenders hold them back). 7. Don't EVER buy another endowment again! TEP traders: Visit the Fool's Homeowning Centre and Endowments and Life Assurance discussion boards
A1 Policy Shop
AAP
Absolute Assigned Policies
Beale Dobie
Insurance Policy Trading Company
Neville James
PolicyPlus International
Policy Portfolio
Policy Trading Company
Surrenda-Link