Surrendering Endowment Policies
Surrendering Your Endowment
There are many reasons why you may want not want to hold your endowment policy to maturity. The most common are changes in your life, like a divorce, or needing cash in your pocket, or simply not being satisfied with the return you are getting. It is this last group that represents the majority of people who surrender their endowment policies. In most cases they do it so they can invest the money some place else in the hopes of getting higher returns. However even if you do get higher returns it is usually not a good idea to surrender your endowment policy.
The problem with surrendering your endowment policy is that in most cases it will leave you with significantly less money than you would have otherwise gotten. In most cases you will end up with less than the amount you have already paid in. This is because endowment policies tend to grow faster as they near maturity. This is primarily because of the terminal bonuses that are added at the end of the contract. In addition if you surrender your endowment there will be an early surrender penalty. This occurs because the assurance company has calculated the charges based on the full length of the policy. Since there are more charges early in the policy than there are later the charges are normally spread out over the length of the policy.
Surrendering your endowment policy should be your last resort, fortunately there are several other options available. One option is to simply retain the endowment, as mentioned earlier they tend to increase in value more quickly as they near maturity. Over the years endowments have historically produced very good financial returns. Another option is a paid up policy, this is one where you no longer pay premiums. Life cover will continue to be provided by deducting the charges from the value of the endowment. When the value of the endowment runs out life coverage stops. Conversely if there are still funds left at maturity of the endowment they will be paid out. A third option if you no longer wish to maintain your endowment policy is to sell it.
There is a whole industry out there based on buying and selling second hand endowments. Given how large this industry is it is somewhat surprising how many people are unaware that they can sell their endowment. This is usually the best option available and almost certainly better than surrendering your endowment policy. This again takes advantage of the fact that endowments tend to grow more quickly as they near maturity. This means you can almost always sell it for more than the current cash in value.
It is rarely a good idea to simply surrender your endowment policy, there are better options available. Before you make any decision it is a good idea to make sure you research all of the available options.