There seems to be a bit of buzz in the financial world at the moment with people looking to sell their endowment policies. Given that endowment policies are financial instruments which have intrinsic worth then its hardly surprising that a market for endowment policy sales exists between willing buyers and sellers. Good old capitalism hasn't died yet. The truth is that at the moment, particularly in the UK, there are probably more people looking to sell their endowment policy than those on the buying side of the equation. In this article I'd like to take a look at exactly what an endowment policy is and the reasons for people wanting to sell them before their terms is up, who the buyers of those policies are, and alternative for those wondering whether they should sell their endowment policy.

Endowment policies were the flavour of the year back in the 1980's particularly in Britian. In the UK they had certain tax advantages and in a high inflation period with limited other investment options they made a lot of sense for those who had 25 years or more to go before retirement and a home to mortgage. The idea was simple - well simplish. The idea was that the home owner bought an endowment policy. The policy was in effect an interest-only mortgage secured against their home. The policy owner paid the interest only repayments - which were of course significantly lower than a traditional, repayment style mortgage which included capital as well as interest repayments. Meanwhile the capital raises by the mortgage was invested in the share market. Some endowment policies, know as unit endowment policies, are directly linked to the share market with unit prices fluctuating widely in line with the share markets ups and downs. The more conservative "profit endowments" were more a managed investements with the finance company attempting to smooth the bumps in stock market performance and giveing a more consistent income stream from the endowment policy.

Endowment Policy Buyers and Sellers

The original endowments were designed to run for a 25 year period at a projected return of 7.5%. A the end of the 25 years the capital invested in the sharemarket should be sufficient to clear the mortgage on the house leaving the investor with a freehold house on which he has only ever had to pay the interest only payments. Unfortunately the stock market has not exactly been the most predicable of markets in the last quarter century and important word in the previous sentence was "should". Many endowment policy owners are discovereing they are not in that happy situation - they can end up being in the market to sell their policy for any number of reasons - most of which are distressing.

The most obvious reason why an investor needs to sell their endowment policy before maturity is because they need to sell their home. They may have married, got divorced, had too many kids, decided to emmigrate. Increasingly these days they may have to sell the house as the bank threatens foreclosure on them. In these cases they are suddenly in the position of needing to sell their policy.

In other cases its the endowment policy company who will approach the policy holder and tell them something has to change. The dismal performance of London's stock market means that often there is a requirement for the policy holder to come up with a higher monthly payment or even to pay off some of the debt. The natural reaction of many people put in this position is insted to look at selling their endowment.

The obvious buyer is that financial company from which you purchased the endowment policy. This can result in distreseesingly low quotes though. Onwers may only be offer 10% of the policy's face value. This is especailly true if the endowment has many years to run. Endowment policies are front-loaded - meaning that all your payments in the first few years go towards paying for the company's fees and charges.

A better option for those wishing to sell their endowment may be to approach an endowment broker. A broker will  represent a number of institutions who are looking to buy endowments and you may well get a better deal from a third party than from the original comapny that you purchased your policy from. 

Alternatively having discovered what your endomwent policy is worth on the open market you may decide instead to look at a third way. It may be worth holding your policy for its full term if you think the company will be in the position to pay the full amount as agreed. This may mean having to make a lump sum payment or increasing your payments in the short-term to save your money in the long-term.

Endowment policies have their issues in today's market but think carefully before you rush into selling yours.