What to do with endowments

I worked for a small IT Group up to January. After a series of problems the business and my job ended. Having spent all our savings we are now in critical land. The only other money we have is tied up in four endowment and savings policies. I can't afford the £185 per month to keep them going and to cash them in after eight years would only be worth £13,000.

The endowment was from an old mortgage and I am now on a repayment mortgage. What do you think I should do with the policies?

Jeff Lewis, Congleton

There are several options available to you and these are outlined below along with the points that should be considered.

1. The endowments and savings plans can be surrendered

This is not an ideal option as older endowment and saving contracts tended to have all the charges deducted at the start of the contract. Therefore, by cancelling the contract the return does not reflect the number of premiums that have been paid.

In addition, if the contracts are with-profit contracts then the surrender value may not reflect the true value of the policy as the insurer may not include any element of terminal bonus in their calculation.

Generally speaking it is better to maintain contracts of this nature until their maturity date, however, if your circumstances leave you with little option but to consider surrendering your policies, you should obtain confirmation of the current surrender value from the insurer and then compare this value with the premiums you have paid.

This information will confirm as to whether the policies are providing a fair return.

2. The endowment and savings plan can be sold

Because of the poor return on surrendering endowment policies, there is now a market for selling endowment policies - usually at a better price than the surrender value under the policy.

Only with-profit policies can be sold as it is only these policies that have the potential for better bonuses to be paid the longer the contract is held.

Whilst there is a market for second hand with profit endowment policies, only those policies issued by the stronger, larger life offices are attractive to purchasers and you will need to obtain sale quotations prior to making any decisions.

3. The endowment and savings plans can be made paid up

You can stop paying contributions to his contracts, but leave the funds accumulated until the normal maturity date of the contract.

You will need to check with his insurance company that there are no penalties for doing this.

The future bonus declarations on the policy will reflect the reduced number of premiums that will be paid, but there should be no effect on the bonuses declared to the point at which premiums ceased.

4. The insurer has a loan facility against the value of the policy

Some insurance companies provide a loan facility against the value of their with-profit policies and you should investigate as to whether this option is available.

Terms available with regards to loan facilities differ and you would need to obtain detailed information as to the interest rates and whether this has to be paid, or can be rolled up until the maturity of the policy.

I would recommend that you obtain independent financial advice prior to making any decisions, you should also ensure that you have alternative life cover in place should you either surrender or sell the life policy and if you lend against the policy you may need additional life cover.

Jo Crew, financial advisor, PKF Financial Planning

The opinions expressed are those of the author and are not held by the BBC unless specifically stated. The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.