with many even failing to return total premium payments back to policy holders upon surrender.
Surrenda-link has conducted a study on over 8,000 with-profit endowment policies within their customer enquiry database and client advised portfolios. The study focuses on policies with 25 year terms (making up an estimated 82% of the market), where a surrender value has been received during the first half of 2013.
The aim of the study is to look at the current levels of Life Company surrender payouts compared to the total premiums paid by policy holders since policy inception. With underlying markets continuing to recover, and Life Companies feeding through some of these gains into policy surrender payouts, it is hoped that policy holders are starting to get a better overall deal when surrendering their policy.
However, Surrenda-link finds that the picture is somewhat mixed, with the key results of the analysis indicating that for the first half of 2013:
On a positive note, less than 1% of policy holders with policies maturing prior to 2020 would have received a surrender value less than the total premiums paid into the policy.
For policies maturing in 2020, 16% of policy holders would have received a surrender value lower than their premiums paid.
For policies maturing 2020 and beyond, the picture is perhaps not so bright. From Surrenda-link’s analysis, 26% of policy holders would have received a surrender value less than the total premiums paid into the policy.
There is a clear trend for policies maturing in the longer term to pay out lower surrender values, when compared to premiums paid, than policies maturing in the shorter term.
This is a feature of endowment policies that Surrenda-link would generally expect to see, with Life Companies tending to reward those policy holders that continue with their premium payments for a longer proportion of the full term.
The Guardian newspaper recently published an on-line article raising this issue, highlighting the frustration and disappointment felt by a particular policy holder recently looking to surrender their endowment. Surrenda-link’s analysis supports the case that this example is unlikely to be an isolated case.
Matthew McQuaid, responsible for endowment trading at Surrenda-link said, “It’s a pity that policy holders aren’t generally more aware of the potential to sell their policy on the secondary market. Life Companies are of course obliged under regulation to inform policy holders looking to surrender of the existence of the secondary market, and they will no doubt be careful to adhere to these rules. However, in Surrenda-link’s experience, the secondary market option is not always the most prominent of options presented to policy holders”
“Surrenda-link provides a free, no obligation valuation service to policy holders. We continuously strive to get this message across to the UK public to ensure they aren’t missing out on much needed cash in these uncertain economic times.”
There is also the question of investment timing when reviewing levels of surrender payouts. For 25 year term policies maturing prior to 2020, these policies enjoyed a longer period of high growth during the 1990s than policies maturing 2020 and beyond. This will no doubt impact on current surrender value levels too.
Digging deeper into the analysis shows a further interesting feature of the market.
Alec Taylor of Surrenda-link comments, “UK Life Companies were active in their marketing of conventional with-profit endowments at very different times. Some Life Companies stopped selling these products in the early to mid 1990s.”
“For example, Standard Life stopped selling conventional with-profits endowments in 1992, moving their product offering to Unitised and Unit-linked endowments - so with most policies having 25 year terms, you won’t find many Standard Life conventional with profit policies maturing post 2017.”
“Other Life Companies, such as parts of the AVIVA Group, continued to market these products well into the late 1990s and beyond. Therefore, the Surrenda-link analysis of surrender payouts against premiums paid is also affected by the Life Company policy mix in each maturity year”.
Finally, it should be noted that endowment premiums will contain an element of life insurance within the premium that is dependent upon the age and health of the policy holder(s). Therefore, not all of the monthly premium will be put towards investment within the with-profit fund.
SL Investment Management, under which Surrenda-link operates as the TEP trading “arm”, plans to publish further detail on these findings during Q3 2013, providing more insight to investment professionals on the current status of Life Company surrender values.