Should I sell my endowment?

Originally Published in This is Money, 17 February 2007

Endowment holders who think they are stuck with a dud policy could be in for a pleasant surprise according to companies eager to purchase their policies.

Thanks to a buoyant resale market, with-profits policyholders whose mortgage endowment has failed to perform could sell their policy for substantially more than the surrender value.

Companies that deal in traded endowments - the term given to resold endowment policies - say they are seeing huge demand for unwanted policies, mainly from German investment funds keen to buy what they see as a good long-term, low-risk investment.

Unfortunately, not all endowment policies are in demand, but those that are can reach up to 30% more than life companies offer in surrender value. People interested in selling on their endowment should contact firms that are members of the Association of Policy Market Makers, the trade body for FSA-regulated firms that deal in traded endowments.

To explain more about traded endowments and why the value of policies has risen, Paul Harrison, of 1stPolicy, a member of the APMM, has written the following guest article for This is Money:

It's that time of the year again when all the insurance companies start to publish their new bonus rates for the forthcoming year. Endowment policyholders wait with baited breath to try to determine whether they should stick with their endowments and hope they recover or cut and run by cashing in their policy and realising the proceeds now.

Not so very long ago sticking with your endowment policy would have been considered the safest option, but in the current climate policyholders view holding on until maturity as something of a gamble. Five years of falling bonus rates have taken their toll on even the most hardened believers.

In the past, endowment policyholders have turned to the second-hand market as an exercise in damage limitation. Put simply, policyholders attempt to sell their policy on the open market rather than surrendering it to the life office - a process often referred to as 'cashing in your endowment'.

In recent years this market has been somewhat limited. Companies that traded in endowment policies accepted only a handful of life offices. Now it seems they have opened their floodgates to nearly all the major life offices and a number of the smaller ones.

This resurgence may seem strange, since bonus rates have been on a downward spiral for some time. This formidable recovery is largely due to policy traders or market makers, as they are known, unearthing an unlikely yet powerful catalyst.

The German connection

Market makers have managed to exploit a massive opportunity presented in Germany and neighbouring countries where huge investment funds see second-hand endowments as an integral part of their fund composition. Market makers in turn have set up exclusive agreements to supply these funds with wide selection of policies from different life offices.

The flip side of the coin is the re-birth of the traded endowment market - a lifeline to the many disillusioned policyholders in the UK. Increased demand means higher prices are being paid for endowment policies, which makes cashing in an endowment more appealing.

It should be pointed out that it is only with-profit policies that market makers are interested in purchasing. At present, there is no trading option for unit-linked policies.

The table below shows the companies whose policies a typical market maker would be interested in purchasing. The companies on the right represent life offices most market makers were previously unable to buy.

Endowments previously acceptedEndowments newly accepted
Britannic AssuranceEagle Star
Clerical MedicalFriends Provident
Co-operative InsuranceGuardian Financial Services
Commercial UnionRoyal Life
Equity & LawStandard Life
General AccidentScottish Amicable
Legal and GeneralScottish Equitable
Liverpool & VictoriaScottish Friendly
National Farmers UnionScottish Widows
Norwich Union
Royal Liver
Royal London
Sun Life
Wesleyan & General

Source: 1stPolicy, Feb 2007

Selling an endowment

Over the years, market makers have modernised their application methods. Nowadays the process is carried out online and takes between three to six weeks to complete

Some of the life offices have also relaxed their rules regarding endowment policy sales. For example, Standard Life, Prudential, Scottish Widows and Scottish Amicable no longer require sight of the original policy document when an endowment is being sold.

If you are considering surrendering or selling your first port of call should be a financial adviser since market makers work on a strictly execution-only basis.

More information: Association of Policy Market Makers,

Paul Harrison is marketing manager of 1st Policy: